Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS

BRITISH TRANSPORT COMMISSION BILL (By Order)

Consideration, as amended, deferred till Tuesday next.

PRIVATE BILLS (ADJOURNMENT OF COMMITTEE)

Committee on the Devon Water Bill, now standing adjourned till Tomorrow, further adjourned, for the convenience of Parties, till Tuesday, 21st June, at Eleven o'clock. —[Major Legge-Bourke.]

Oral Answers to Questions — NATIONAL FINANCE

Richard Thomas and Baldwins (Capital Issue)

Mr. C. Osborne: asked the Chancellor of the Exchequer if he will use his influence to see that the Richard Thomas and Baldwins capital issue is made in all ordinary shares, so that no part of the company's capital remains in either preference or debenture stocks, which would be less easily sold.

The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory): I would refer my hon. Friend to the Answer which I gave him on 26th January.

Mr. Osborne: But a lot of water has gone under the bridge since 26th January. Can my right hon. Friend tell us how big the issue will be and when it will be made? Does he not agree that it would be unfair to the taxpayer for the public to have the equity shares, which can rise to a premium, and for the Government Department to be left with the preference and debenture stocks which will stand at a discount?

Mr. Amory: I agree it is most important that a big sale of assets of this nature should be made under conditions which will give the best return to the taxpayer. Of course, the responsibility for deciding on and recommending the best method lies with the Iron and Steel Holding and Realisation Agency. I think that I must leave it to that body to give me its advice.

Mr. Lee: Is the Chancellor aware that we do not accept that the responsibility lies with the Agency? It lies with the Chancellor and the Government. At the moment, there is no problem because 52 million people own all the capital of Richard Thomas and Baldwins, and they are getting a terrific return on the capital of this most efficient unit of the steel industry. It is returning great profits to the nation every year, and it does great credit to the whole concept of nationalisation. Only the vandals doing this kind of thing are responsible for this kind of nonsense.

Mr. Amory: Most of the rather long supplementary question which the hon. Gentleman has asked deals with the policy of denationalisation, which is not raised in this Question. As regards the first part of the hon. Gentleman's supplementary question, I did not say that the responsibility for action or decision lay with the Agency but only the responsibility for deciding the best method and recommending that to me.

Mr. Lee: Would not the right hon. Gentleman agree that it is because of Government policy that this great problem with which his hon. Friend is confronted arises at all? Can the right hon. Gentleman advance any reason at the moment to show that it is not working efficiently in the interests of the nation? Is it not a fact that where any big steel combine has been denationalised the only thing that has happened is that the majority of the capital has stayed in public hands and that all that has been denationalised is the profit?

Mr. Amory: The reason for our present policy in this respect is the welfare of the nation at large.

Mr. J. Griffiths: May I ask the right hon. Gentleman two questions, to which I would like an answer? First, on the merits of the case, is there any single word to be said for denationalising this


firm? Secondly, since the workers have played a very considerable part by skill and service, can they be consulted?

Mr. Amory: The answer to the first part of the right hon. Gentleman's supplementary question is "Yes". The answer to the second part is that this step will also be in the long-term interest of the workers.

Taxation

Mr. C. Osborne: asked the Chancellor of the Exchequer what are the main tax reductions that have taken place since the Budget of April, 1951; and how much greater he estimates that the taxation revenue would be for the current year if the 1951 taxes still operated.

Mr. Amory: I am circulating a brief summary of the main changes in the OFFICIAL REPORT. As regards the second Dart of the Question, it is estimated that the yield from Inland Revenue duties would be about £1,300 million higher in the current year if the 1951 rates and allowances were in force. No worth-while comparable estimate can be made of the yield from indirect taxation because it is impossible to assess the effects on consumer spending of the higher level of direct taxation in 1951 and because with 1951 rates of indirect taxation the pattern of consumption would probably be different.

Mr. Osborne: Is my right hon. Friend aware that the £1,300 million per annum which he and his Conservative predecessors have taken from the shoulders of the taxpayer is an action for which we are very grateful, that some of us hope that the newspaper reports to the effect that he will not reply to Questions are wrong, and that he will continue to give us his good news for many years to come?

Mr. Amory: I think the nation as a whole is well satisfied with the progress made in this direction.

Mr. Jay: Is the Chancellor also aware that the amount that he is actually taking in Inland Revenue duties from the taxpayers exceeds that of 1951 by over £31,000 million a year?

Mr. Amory: Does the right hon. Gentleman realise that the reason for this is that the real income of the nation as a whole has risen so greatly?

Following is the summary:
Changes in rates of taxation since 1951 are set out in the appropriate Financial Statements.
The main reductions in direct taxation have been in the rates of Income Tax, the standard rate being reduced from 9s. 6d. to 7s. 9d. with corresponding extension and changes of the lower rates. The following allowances have also been increased—single allowance from £110 to £140, married allowance from £190 to £240, child allowance from £70 to £100, £125 or £150 according to age; earned income relief has been increased from 1/5th to 2/9ths and the ceiling extended. The effective level of Profits Tax has also been reduced by changes in the rates and method of computation.
In the field of indirect taxation the rates of Purchase Tax and the rates of duty on heavy wine and beer have been reduced; while the Entertainments Duty has been abolished. Rates of duty have been increased on tobacco and hydrocarbon oils and a television duty has been introduced.

British Wine (Duty)

Sir R. Glyn: asked the Chancellor of the Exchequer what has been the annual revenue since April, 1955, from the Excise duty on British wine; how much has been contributed to the total each year by cider and perry of an alcoholic strength of 15 degrees of proof or more; and what are the estimated yields in each case for 1960–61.

Mr. Amory: As regards the revenue from the Excise duty on British wines, a number of figures are involved and I will, with permission, circulate them in the OFFICIAL REPORT. Separate figures for cider and perry, strengthened to 15 degrees of proof or more, are not available.

Sir R. Glyn: Is my right hon. Friend aware that the firms producing cider or perry of 15 degrees of proof or more number less than half a dozen, and that their accounts have been published which show that the revenue paid on the strengthened cider or perry is less than £100,000 a year? Will my right hon. Friend agree that this amount, while of microscopic proportions if looked at on the national scale, is a heavy burden on the firms concerned?

Mr. Amory: I am not quite sure about "a heavy burden" because the firms have the alternative of either paying the duty or reducing the strength of their beverages below 15 degrees. Apart from the revenue returned, I have also to


consider the question of fair treatment in competition with British wines.

Following are the figures:
Yield of the Excise duty on British wines since April, 1955:


Financial Year
£


1955–56
3,501,613


1956–57
3,574,225


1957–58
3,271,386


1958–59
3,152,697


1959–60 (provisional)
3,772,446


1960–61 (estimated)
3,410,000

Capital Investment

Mr. Holt: asked the Chancellor of the Exchequer if he will set up a capital investment board to advise him on the priorities and appropriate scale of capital investment which has to be financed by the Treasury.

Mr. Amory: No, Sir. The general question of Exchequer financing of capital investment is an integral part of Government's responsibility for the national economy as a whole and could not usefully be referred to such a board though Government may wish to take independent advice on specific issues. In my view the existing arrangements are adequate.

Mr. Holt: Would not the right hon. Gentleman agree that, as the Government are now responsible for a wide field of capital expenditure, and as Parliament should be in a position to comment on this matter in an informed manner from time to time, it would be an advantage if such a committee were set up and published a report, which the Government could then refuse to abide by or otherwise, but at least Parliament would have an opportunity of commenting on it?

Mr. Amory: The question of Parliamantary control is rather a separate one, but the Government consider this is an integral and very important part of the control of the economy, and it is our view that the responsibility must be ours, and ours alone.

Kodak Limited

Mr. Swingler: asked the Chancellor of the Exchequer, in view of the fact that Her Majesty's Government is the biggest shareholder in Eastman Kodak Company Limited, which has a majority shareholding in Kodak Limited, what control the

Government exercises over the policies of these companies; and if he will make representations to the board of directors in favour of the recognition of trade unions.

Mr. Amory: It would be contrary to long-established practice to disclose details of the assets of the Exchange Equalisation Account, and I am therefore not prepared to say whether the hon. Member's assumption is correct. But in any event Her Majesty's Government exercises no control over the policies of these companies. The question of the recognition of trade unions is one for Kodak Limited to decide.

Mr. Swingler: Is not the right hon. Gentleman aware that one of the directors of the Eastman Kodak Company Limited recently told a gathering of workers of the firm that the Government were the biggest shareholder? Therefore, I take it that I can continue to act upon that assumption. If that assumption is correct and the Government have this important influence in the firm, in which there is a dispute about the recognition of trade unionists, will not the right hon. Gentleman use his influence, even if it is only temporary, in favour of getting trade unions recognised?

Mr. Amory: The answer to the first part of the hon. Gentleman's supplementary question is "No". As to the second part of the question, the hon. Gentleman is entitled to make what assumptions he likes, but I have neither confirmed them nor denied them.

Farmers (Taxation and Subsidies)

Sir R. Glyn: asked the Chancellor of the Exchequer if he will state the net sum paid in Income Tax by farmers in respect of their farms in each year since 1947; and what proportion of the subsidy paid to farmers in each year is represented by the tax paid by farmers in that year.

Mr. Amory: I regret that this information is not available.

Sir R. Glyn: Would not my right hon. Friend agree that the total sum paid in agricultural support prices in the current year is approximately equal to the estimated total net income of all farmers for that year? Would he further agree that a substantial part of the sum paid to the


farmers in support prices is returned to the Treasury in the form of taxes paid by farmers?

Mr. Amory: As to the first part of my hon. and gallant Friend's supplementary question, I would say from memory that the net income of the industry is rather higher than the total cost of agricultural support. With regard to the second part of the supplementary question, I sincerely trust that an appropriate part of the income is returned to the Treasury in taxation. I would confirm that it amounts to a substantial sum, but what proport on it represents I am not, unfortunately, in a position to tell my hon. and gallant Friend.

Overseas Visitors (Motor Cars)

Mr. Boyden: asked the Chancellor of the Exchequer if he intends to allow overseas visitors to bring their motor cars to England for the current holiday season without the formal Customs documents hitherto required and now abolished by most Western European countries on the temporary importation of foreign motor cars.

Mr. Amory: Our situation is different from that of other Western European countries. The present arrangements safeguard the high import duty and Purchase Tax charges on imported road vehicles without undue inconvenience or delay to overseas visitors. While therefore I cannot hold out any hope of dispensing with the Customs documents to which the hon. Gentleman refers, I should be ready to consider any alternative scheme which would provide effective safeguards for the revenue.

Mr. Boyden: Surely the Chancellor agrees that this would be valuable to the tourist industry? Surely, on the face of it, it ought to be easier for Britain to control the import of cars, with a sea crossing and so on, than it is for a Continental country? Will the right hon. Gentleman have another look at it and see what can be done?

Mr. Amory: I will keep on having a look at this, because the more we can get rid of restrictions of this kind the better is will be. So far, however, a satisfactory alternative way of protecting the Revenue has not been found. We have to remember that the number of cars coining into the country is rising

every year now. Our peculiar conditions are a high rate of import duty and a high rate of Purchase Tax, and, as has been said, there is the sea crossing. In these circumstances, it has so far been found difficult to devise an alternative way of protecting the revenue, but I will most gladly consider any suggestion which may be put to me.

Mr. Hirst: Is my right hon. Friend aware that certain other countries—Belgium, in particular—have that problem and have overcome it and that we appear to be very old-fashioned and somewhat ridiculous in this regard? Does not this warrant a much closer examination? Only Spain and Portugal are left, apart from ourselves.

Mr. Amory: I think that some of the other countries have had to do it almost faute de mieux because they could not control the passage of cars across their land frontiers. That is the reason why their problem is different from ours. Still, I recognise the desire and will continue to look at the matter. As I have said, I will consider every practical alternative suggestion that is put to me.

Apprenticeship Schemes

Mr. Boyden: asked the Chancellor of the Exchequer if, in view of the increasing difficulties juveniles are experiencing in finding apprenticeships, he will allow suitable tax concessions to those firms who are prepared to employ apprentices supernumerary to their normal establishment.

Mr. Amory: I am afraid that I could not see my way to propose special tax allowances in the circumstances to which the hon. Member refers.

Mr. Boyden: Is the Chancellor not aware that this problem is becoming very much more difficult, and will get more difficult as time goes on, and that the Industrial Training Council is making very little headway? As it is consistent with Conservative policy to give a substantial concession to something which is thought to be in the interests of young people, will not the right hon. Gentleman have another look at this matter and see what can be done?

Mr. Amory: I recognise the importance of encouraging more apprenticeship


schemes. All legitimate expenses incurred on such training are already allowable for tax purposes. The hon. Gentleman is really asking for a sort of double allowance, and that would open the door very wide and raise very great complications and have repercussions in other instances of equally desirable expenditure.

Members (Copying Machine)

Mr. F. Noel-Baker: asked the Chancellor of the Exchequer if he will make available a copying machine for the use of hon. Members and their secretaries, in view of the greatly increasing burden of clerical work which their constituency and parliamentary work now demand.

Mr. Amory: I am advised that a copying machine is already available in the Fees Office for use of hon. Members and their secretaries. If hon. Members find existing facilities inadequate, they may care to make representations in the first instance to the House authorities.

Mr. Noel-Baker: While my hon. Friends and I and, I suspect, some hon. Members opposite are glad to have this information, which they did not have previously, may I ask the Chancellor whether he will look at the matter again, because on inquiry I have found that this facility, which is widely available in every kind of office elsewhere in the country, is available to hon. Members only if they pay 6d. per foolscap copy and 4d. per quarto copy? Is not this a rather ridiculous arrangement? Will the right hon. Gentleman look at it again and see whether we cannot have this facility freely available to us?

Mr. Amory: I do not want to deny hon. Members reasonable facilities. I agree with what the hon. Gentleman says about the utility of this type of machine. I do not think that if I had to provide another one it would entirely destroy the basis of my public investment expenditure programme. Therefore, I will pay attention to any representations which the House authorities might care to make to me.

Trustee Savings Banks (Cheques)

Mr. Jay: asked the Chancellor of the Exchequer whether he will now state the outcome of his consultations with

representatives of the trustee savings banks on the proposal for a limited cheque system.

Mr. Amory: My hon. Friend the Economic Secretary met representatives of the Trustee Savings Banks Association to discuss this proposal on 28th April. It was agreed that a number of points raised would be further examined by the association and that discussions would be resumed in due course.

Mr. Jay: Is the Chancellor aware that the trustee savings banks have been waiting for fifteen months to put this public service into operation and that the staff are very impatient to get on with it? Will he assure us that he will not be influenced by fears from commercial banks of competition from this public service?

Mr. Amory: There are a good many aspects of the problem to be considered. The administrative arrangements involved will be quite formidable and will need careful examination. Legislation will also be required before any change of this kind can be made.

Mr. Jay: Will the right hon. Gentleman also take into account that the trustee savings banks lend him £800 million at 3 per cent., which is much less than he has to pay now on Treasury bills?

Mr. Amory: I am most grateful to them for all they do.

Building Society Mortgages (Interest Rates)

Mr. Lipton: asked the Chancellor of the Exchequer what complaints he has received about the burden of mortgage interest rates; and what replies he has sent.

Mr. Amory: The Treasury has received 30 letters since the beginning of the year about the rate of interest charged on building society mortgages. The reply has been that the rate of interest on mortgages must remain a matter for settlement between a society and its borrowers.

Mr. Lipton: Is the Chancellor aware that many of the 3¼ million borrowers from building societies are getting a raw and rough deal, the more so in the light


of the Government's airy talk about encouraging a property-owning democracy? If the right hon. Gentleman intends to look at this building societies problem at all, will he have a searching inquiry made into their management costs? They are the only moneylenders who can alter a contract when it pleases them—very quickly when the Bank Rate goes up and very slowly when the Bank Rate goes down.

Mr. Amory: In response to the rather critical tone of the hon. Member's question, I must say that I think the building societies do a very fine job. It must be remembered that they have to borrow before they can lend. [An HON. MEMBER: "Why?"] The rate at which they can borrow must be related to the demand on and supply of capital, and they cannot be insulated from the effect of market prices.

Mr. Emrys Hughes: Can the right hon. Gentleman say how many of these letters of complaint he has received from local authorities in Scotland? Is he aware that local authorities in Scotland would provide local work for the unemployed if the rates of interest were not so high? Is he further aware that there is a great deal of indignation because high rates of interest make the housing problem more acute?

Mr. Amory: But even then the fact must be faced that the rate of interest on money borrowed must be related to the supply of capital available.

Decimal System

Mrs. Slater: asked the Chancellor of the Exchequer what consideration he has given to the joint report of the British Association for the Advancement of Science and the Association of British Chambers of Commerce on the conversion of coinage to the decimal system.

Mr. Amory: I am studying this interesting report but have no statement to make at present.

Mrs. Slater: Does the Chancellor not think that, in view of the very large number of reports which have been issued on this subject over the years and of some of the statements made in the Hodgsor Report on Weights and Measure; Legislation in 1951, at least

some steps might be taken towards consulting the Commonwealth on this problem, which will have to 'be faced in the near future?

Mr. Amory: It is a problem of great importance in the long term, and therefore I think that the Government would welcome most strongly an expression of public opinion on the whole matter.

Scottish Hotels (Loans)

Mr. Hector Hughes: asked the Chancellor of the Exchequer, in view of the importance of extending the Scottish tourist industry, if he will state his proposals for making loans, on favourable terms, for the building, extension, and improvement of hotels in Scotland.

Mr. Amory: More good hotels are desirable in Scotland and in this country as a whole. But a case has not been made out for giving assistance from public funds.

Mr. Hughes: Does the Chancellor not realise that high unemployment, depopulation and beautiful scenery all combine to make the suggestion in the Question a desirable one and that in neglecting the north of Scotland he is repudiating promises made by his Government during the General Election? If the right hon. Gentleman has self-respect, will be get his Government to rectify this?

Mr. Amory: I hope I have self-respect, and it is for that reason that I should like to quarrel most strongly with the hon. and learned Member's statement that the Government are neglecting Scotland. [HON. MEMBERS: "oh."] The truth is exactly the opposite.

Mr. Manuel: Of course they are.

Mr. Nabarro: Would my right hon. Friend bear in mind that the most effective way in which he can help the hotel and tourist industry in this country, as represented to him continuously in the last two or three years by the representative body, is to reduce the excessive rate of Purchase Tax on the equipment they require in these hotels?

Mr. Amory: As my hon. Friend knows already, I think that the interpretation of the Purchase Tax Schedules acts quite generously towards the equipment of hotels.

Oral Answers to Questions — WELSH AFFAIRS

Welsh Books

Mr. Morris: asked the Minister of Housing and Local Government and Minister for Welsh Affairs what, under the existing grant scheme for the publication of Welsh books, was the average amount paid for each book published; how much this represented per copy; and what is the intended amount, similarly, of payment under the increased grant already announced.

The Minister of Housing and Local Government and Minister for Welsh Affairs (Mr. Henry Brooke): It is the University of Wales Press Board that is responsible for the detailed administration of the grant scheme. I have asked the board to let me have periodical information as to the working of the scheme. In the light of such information I hope to be in a position to make a report shortly.

Mr. Morris: While thanking the right hon. Gentleman for that statement, may I ask whether that report will be published? Is the right hon. Gentleman aware that at the moment there is no provision for giving a grant for the reprinting of Welsh books, hundreds of which are now out of print? Will he give further consideration to some provisions by way of loan for financing the stocking of books so that a sufficient number can be printed at one and the same time so as to avoid this difficulty? Is the right hon. Gentleman aware that some Welsh publishers in the past have refused a grant or returned it as inadequate and have requested the University Board to lump two or three grants together and reallocate the money in respect of one book?

Mr. Brooke: This was a generous addition to the grants for the publication of Welsh books. I cannot hold out any hope that it will be extended, but I certainly intend that the report shall be available to the public and I will send the hon. Member a copy.

Mr. Cledwyn Hughes: Is not the sum now being paid pitiable? Will not the right hon. Gentleman discuss with the Minister of Education the possibility of giving assistance to the publication of

Welsh schoolbooks which, as the right hon. Gentleman should know, are in very short supply?

Mr. Brooke: The sum involved has been trebled this year.

Oral Answers to Questions — LOCAL GOVERNMENT

Refuse (Salvage)

Mr. Russell: asked the Minister of Housing and Local Government and Minister for Welsh Affairs approximately what proportion of local authorities still dispose of their household and trade refuse by tipping or other means without first recovering any metal, glass, paper or textiles from it.

The Parliamentary Secretary to the Ministry of Housing and Local Government (Sir Keith Joseph): My right hon. Friend has information from 464 authorities, including most of the large ones. Forty-five do not recover any of these materials.

Water Supplies, Mitford and Launditch

Mr. Hilton: asked the Minister of Housing and Local Government and Minister for Welsh Affairs how many villages in the Mitford and Launditch Rural District Council area, Norfolk, are without a piped water supply.

Sir K. Joseph: I understand that 31 parishes in this rural district are without a piped water supply. Eight of these may soon have piped supplies as a result of schemes which the council have under consideration.

Mr. Hilton: Is the Parliamentary Secretary aware that only one-third of the villages in this area have a piped water supply? Would he not agree that it is a thoroughly disgraceful state of affairs in 1960 that so many people living in rural areas should be denied a decent water supply? I realise that it is the local authorities' responsibility, but could not the Parliamentary Secretary instruct the slack local authorities in their responsibilities and impress upon them the importance of providing a decent piped water supply to people in such areas?

Sir K. Joseph: My right hon. Friend would like to see more progress in this area. No doubt the regrouping proposals now being considered will help.

Contracts

Lieut.-Commander Maydon: asked the Minister of Housing and Local Government and Minister for Welsh Affairs what regulations he makes to control the terms of contracts for goods or for works placed by local authorities.

Mr. H. Brooke: I have no power under the law to make any such regulations.

Lieut.-Commander Maydon: Is my right hon. Friend aware that the form of tender for the supply of police gloves issued on 15th March, 1960—[HON. MEMBERS: "Reading."]—by the city council of Newcastle-upon-Tyne had attached to it a condition, and here I quote:
None of the articles"—

Mr. Speaker: I have to insist upon the rule about quoting. Perhaps the hon. and gallant Member can summarise the facts.

Lieut.-Commander Maydon: The condition was that none of the goods supplied in respect of the tender should be of South African origin. [HON. MEMBERS: "Reading."] Is my right hon. Friend further aware that this idiotic boycott, thought up by the party opposite, is likely to do greater harm to innocent people, including Africans—[HON. MEMBERS: "Reading."]—and others—

Mr. Speaker: Order. If there be less noise there might be more progress.

Lieut.-Commander Maydon: —and others who deplore racial discrimination than to those responsible for racial policies in South Africa?

Mr. Brooke: Without entrenching upon responsibilities wider than my own, I must tell my hon. and gallant Friend that I deprecate any such conditions in a tender for issue by a local authority, but I have no power to forbid it.

Mr. Callaghan: On the facts of the matter, is the Minister aware, and will he convey it to his hon. and gallant Friend, that the boycott did not originate with the party here? The request for this boycott came from those people in South Africa, many of whom are now in jail without trial, who wanted some moral succour in their distress?

Mr. Brooke: My sole concern is with the action of local authorities, and, as I say, I do not think it is proper for local authorities to encourage boycott conditions of this kind, but I cannot prevent them.

Mr. M. Stewart: Whether he thinks it is proper or not, would not the right hon. Gentleman agree that this is a matter on which local authorities ought to be entitled to please themselves, because a great many people feel as strongly in favour of the boycott as the hon. and gallant Gentleman feels against it, and it enjoys the support of people of a good deal greater distinction than the hon. and gallant Gentleman?

Mr. Brooke: The duty of local authorities is not to please themselves but to please the people who elect them.

Trees and Buildings

Mr. Ellis Smith: asked the Minister of Housing and Local Government and Minister for Welsh Affairs what response has been made to his Deparment's circular sent to local authorities concerning the planting of more trees, and the cleaning of industrial cities and towns; and what further action he intends to take in this connection.

Sir K. Joseph: It is difficult to measure the response to the circular issued in 1956 about planting more trees, but there are indications of increasing interest. As regards cleaning industrial cities and towns, local authorities for many industrial areas have sent my right hon. Friend their plans for establishing smoke control areas, and he will be publishing this information shortly.

Mr. Ellis Smith: Does the Parliamentary Secretary agree that when it comes to a question of the need to increase productivity and increase output, which means that the working classes must work harder, there is great drive at modern jet speed, but that when it comes to improving the localities where they live we travel at stage coach speed? Will he consult his right hon. Friend with a view to sending out another circular in order that this matter can now be treated as one of extreme urgency and so that we can keep pace


with the way the world is moving in improving the areas where people live and work?

Sir K. Joseph: I think as useful as a circular is the example given by Norwich and by the hon. Gentleman's own area of Burslem where, as a result of local initiative, the city centres are being cleaned up.

Colliery Spoil Heaps and Derelict Land

Mr. Ellis Smith: asked the Minister of Housing and Local Government and Minister for Welsh Affairs what action has been taken by the local authorities on clearing or improving colliery slag heaps and land; if he is satisfied with the progress made and the speed of the action taken; and what are the prospects in north Staffordshire and Lancashire.

Sir K. Joseph: A number of schemes for reclaiming old spoil heaps for other uses or for improving their appearance have been carried out or are now going ahead. My right, hon. Friend would like to see much more done; but progress does appear to be quickening in many districts, including Lancashire and Staffordshire, whose planning authorities are keenly interested in this work.

Mr. Ellis Smith: No one appreciates that sympathetic Answer more than I do, but here again, does the Parliamentary Secretary agree that we are moving at a very slow speed? In view of the large resources lying derelict which could be improved with very little expenditure, will the Parliamentary Secretary consult his right hon. Friend with a view to speeding up this matter?

Sir K. Joseph: My right hon. Friend sent out a circular last year and has just asked for a progress report from all local authorities.

Piccadilly Circus (Development)

Mr. Robinson: asked the Minister of Housing and Local Government and Minister for Welsh Affairs if he will now announce his decision with regard to the development of the Café Monico site.

Mr. H. Brooke: My decision was announced on 19th May.

Mr. Robinson: May I take this opportunity of congratulating the right hon. Gentleman on a wise and courageous decision taken firmly in the public interest? May I also congratulate his inspector on an exceptionally lucid and imaginative report? May we now take it that the Minister and his Department will give every assistance to the London County Council in drawing up a comprehensive development plan for this area?

Mr. Brooke: I am grateful to the hon. Gentleman for what he said about my inspector and myself. Planning control often makes people angry, but if it did not exist I think things would happen both in town and country which might make them angrier still. It is certainly my desire to collaborate as effectively as possible with the London County Council in securing the drawing up of a comprehensive development plan which I hope will give general satisfaction.

St. Pancras Council Meetings (Public Access)

Mr. Reynolds: asked the Minister of Housing and Local Government and Minister for Welsh Affairs what correspondence he has sent to the St. Pancras Metropolitan Borough Council with regard to its decision to close the public gallery during the next three council meetings; and whether he will make a statement.

Mr. H. Brooke: I have sent no correspondence. I have no statement to make.

Mr. Reynolds: Is the Minister not going to deprecate the activities of this Tory-controlled authority in excluding the public from meetings, in the same way as he deprecated the action of a Labour-controlled authority in excluding the Press from meetings last year? Would he not agree that his statement on 6th July last year should apply equally to Tory-controlled as to Labour-controlled councils?

Mr. Brooke: I understand that in this case it has been necessary for the council to adjourn on several occasions while interrupters were removed, and that on the last occasion eggs were thrown from the public gallery and demonstrators chained themselves to their seats. I can


understand the council authorities wishing to take some effective action in such circumstances.

Mr. M. Stewart: But does the Minister consider that local authorities ought to exercise a right of collective punishment over their electorates, and will he draw the attention of St. Pancras Council to the words he used a little while ago in answer to a supplementary question of mine, that councils are elected not to please themselves but to please their electorates?

Mr. Brooke: It is extremely doubtful whether the demonstrators are pleasing anybody but themselves.

Litter Baskets

Mr. Janner: asked the Minister of Housing and Local Government and Minister for Welsh Affairs whether, in connection with the anti-litter campaign which is to be put into effect, he will issue a circular suggesting to local authorities and all those providing outdoor entertainment, such as race meetings, that more litter baskets should be set up, in view of the fact that, although many people wish to keep litter off the ground, there are no receptacles, and in view of the difficulty of carrying about such litter as banana skins and orange peel.

Sir K. Joseph: Repeated recent circulars to local authorities and a campaign guide, by the Department and the Keep Britain Tidy Group this year, all include this advice.

Mr. Janner: Will the hon. Gentleman give more publicity to these circulars with a view to seeing that baskets are provided? Is he aware that the public would be glad to have an opportunity of putting its litter in the proper places, but that receptacles are frequently not available?

Sir K. Joseph: The number of bins has been increased, but no amount of bins can cope with same occasions. We must hope that the public will arrange to carry its litter away until it can dispose of it.

Mr. Janner: Carry it to where?

Planning Appeals

Mr. Chapman: asked the Minister of Housing and Local Government and Minister for Welsh Affairs what general rule he follows as to the interval which

must elapse before he will agree to hold a further local inquiry into an appeal for planning permission for residential development on land not so zoned in a development plan, and where there has been no material change in the facts of the local situation.

Sir K. Joseph: Whenever an appeal is made to my right hon. Friend against the refusal of planning permission, he is obliged to give the applicant and the local planning authority an opportunity of being heard. Whether in the circumstances envisaged by the hon. Member he should hold another local inquiry, or arrange for a hearing, or invite the parties to agree to the appeal being dealt with on the basis of written representations, would depend on the facts of the particular case.

Mr. Chapman: Cannot this be regularised in some way? Is it not the case that in connection with an area on the South Coast the Minister recently turned down an appeal relating to a small piece of land three times in two years, after all the paraphernalia and expense of a local inquiry, and even at the end he refused to award costs against the appellant? Should not it be made quite clear that these continuous re-appeals should not he made in respect of land the future of which has already been decided?

Sir K. Joseph: My right hon. Friend has powers to award costs if he thinks appeals have been brought frivolously or vexatiously.

Euston Station (Doric Arch)

Mr. Wyatt: asked the Minister of Housing and Local Government and Minister for Welsh Affairs whether he will make a further statement on the future of Euston Station.

Sir K. Joseph: I cannot yet add anything to my reply to the hon. Member's Question a week ago.

Mr. Wyatt: Has not the British Transport Commission said that although it will pull down the Doric Arch in such a way that it can be re-erected, it does not propose to provide the money to re-erect it? Is it not the case that only the Minister can now save this historic building which everybody with any interest in the matter—including the Royal Fine Art Commission—is anxious to preserve?

Sir K. Joseph: I understand that negotiations will go on between the British Transport Commission and the London County Council on this matter.

Gipsies' Encampment, Kent

Mr. Dodds: asked the Minister of Housing and Local Government and Minister for Welsh Affairs in view of the increasing problems and hardships facing gipsies in finding places where they can live in caravans within the law, and the difficulties that arise in providing accommodation for those who are prepared to make the change, if he will make a statement in respect to the application made to him by the Kent County Council for his approval in setting up a permanent gipsy encampment, giving details of the main features of the proposal.

Sir K. Joseph: My right hon. Friend has amended the Kent Development plan, on the application of the county council as local planning authority, and after a public local inquiry, to allocate land at Great Chart in West Ashford Rural District for a caravan site for gipsies and other travellers, and to designate it for compulsory acquisition.

Mr. Dodds: I thank the Parliamentary Secretary for that reply, and also the West Ashford Rural District Council for its courageous and humanitarian decision, which is in marked contrast to the shameful treatment of gipsies in other parts of the country. Will he do what he can to develop this idea, especially for the sake of the children involved, so that in future this country will be in a much better position to criticise the treatment of coloured people in other countries?

Sir K. Joseph: My right hon. Friend has already welcomed the efforts made by this local authority to provide for the needs of these people.

Sir G. Nicholson: Does my hon. Friend appreciate that it is widely felt that this picturesque and harmless community is in danger of being crushed out by a rather soulless bureaucracy? Will he pay a little more attention to its interests in future?

Sir K. Joseph: This example is one that may be followed.

Oral Answers to Questions — HOUSING

Playgrounds

Mrs. Butler: asked the Minister of Housing and Local Government and Minister for Welsh Affairs if he will initiate discussions with local authorities about the possibility of agreeing standards of play-space for children in all housing schemes in which development takes the form of flats.

Mr. H. Brooke: The hon. Member will, I think, be pleased to know that this matter is already under consideration by the Housing Standards Subcommittee of my Central Housing Advisory Committee, which is taking evidence about it from local authorities and others.

Mrs. Butler: Will the Minister give an assurance that when he receives the report from the Committee he will do everything he can to speed this up? The high cost of land and the shortage of it is compelling many families with children to live in blocks of flats, and often they have no place outside where they are allowed to play. In view of the fact that this is essential to happy childhood and that many planning authorities already require the provision of space for cars, is it not equally important that playing space standards should be provided as quickly as possible for children in new housing schemes?

Mr. Brooke: The sub-committee is proceeding with its work as rapidly as possible and will report to the main committee in due course, but I hope it will present a report which I shall be able to commend warmly to local authorities.

Empty Houses

Mr. Frank Allaun: asked the Minister of Housing and Local Government and Minister for Welsh Affairs if he is aware of the number of empty houses in big cities where there is a serious housing shortage; and if he will introduce legislation requiring landlords to pay rates on empty houses.

Mr. H. Brooke: The numbers are not reported to me, nor could one attach significance to them without information about the reasons why the houses are empty and the length of time they remain so. I do not consider that to impose liability for rates on empty houses would materially affect the numbers.

Mr. Allaun: Surely the Minister knows that, because rent control is removed when a house is vacated, many landlords exploit the housing shortage by holding out for high rents and high prices? Would not the levying of rates help to restore the balance in the tenant's favour and also reduce the waiting or empty period?

Mr. Brooke: I am not aware of any exceptional percentage of houses standing empty at the present time, at any rate in England and Wales, and it does not seem to me that the owner of a house who thought he ought to be able to get a certain price and was not getting it would be likely to hurry to sell it simply because it was made liable to rates.

Mr. M. Stewart: Would not the right hon. Gentleman agree that the owners of empty properties are benefiting all the time from various services which local authorities supply and that it is not unreasonable that they should make some contribution to them?

Mr. Brooke: I would be reluctant to encourage the idea that rates ought to be charged according to the benefit received from local services.

Willesden

Mr. Pavitt: asked the Minister of Housing and Local Government and Minister for Welsh Affairs what were the reasons for dismissing the application of the Willesden Borough Council to build dwellings in Oman Avenue.

Mr. H. Brooke: The land in question is a small part of a large freehold estate; and as the owners are able and willing to build flats on it themselves I did not consider that the use of compulsory powers was justified to enable the Willesden Borough Council to build in their stead.

Mr. Pavitt: In view of the fact that the local borough council is responsible for building 750 dwellings for slum clearance, 402 for the clearance of prefabricated dwellings and 47 for rent evictions, is it possible for the Minister to reconsider his decision?

Mr. Brooke: No, Sir. I have given my decision on this matter. It emerged at the inquiry that the council had enough land for its own building for five years

ahead, and in the circumstances it seemed to me that the owners of this site, who wished to redevelop it themselves for flats, should be allowed to do so, rather than that it should be compulsorily taken from them.

Mr. Pavitt: asked the Minister of Housing and Local Government and Minister for Welsh Affairs whether he will consider the housing programme of the Willesden Borough Council up to and including the end of March, 1961, in order that delay in loan sanction shall not prevent the building programme which has been already agreed upon by that council.

Mr. H. Brooke: I know of no reason for departing from the present practice of basing housing programmes on the calendar year; it is well understood by local authorities, and certainly need not lead to delay in the granting of loan sanction. I have already approved the Willesden Borough Council's housing programme for 1960 and shall be ready to consider any proposals for 1961 which it may put forward later this year.

Mr. Pavitt: I thank the right hon. Gentleman for that reply. Is he aware of this gap between the fiscal year of the Borough Council and the calendar year to which the right hon. Gentleman works? The Willesden Borough Council hopes to start on 180 dwellings in the interim period, from January to March. Will he be prepared to give the borough council further sanction for these dwellings before the end of this year?

Mr. Brooke: Yes. The council submitted its programme for 1960 to me on 28th April, and I approved it in full six days later. I would have been prepared to take it into consideration if it had been sent in six months earlier than that.

Monmouthshire

Mr. Thorneycroft: asked the Minister of Housing and Local Government and Minister for Welsh Affairs whether his attention has been called to the proposal of the Monmouthshire County Council to subsidise steelworkers' houses to the extent of £30 a house for sixty years; and, in view of the resultant claim on public funds, what steps he has taken to satisfy himself of the need for this proposal.

Mr. H. Brooke: The county council does not require my authority to make such a contribution to district councils in the county. I am given to understand that no payment will be made by the county council for any house in respect of which any subsidy from the Exchequer is paid.

Mr. Thorneycroft: Is my right hon. Friend quite happy to see the rents of well-paid steel workers subsidised in part by the Chancellor of the Exchequer and in part by other householders, who are often in much poorer circumstances? Is it not time that he and the Chancellor put their heads together to stop the squandering of public money?

Mr. Brooke: I do not think that the Chancellor of the Exchequer comes into this matter. I am not aware that there will be any subsidy from the Exchequer in such cases. On the contrary, the money will come from the ratepayers of Monmouthshire. It is the law that county councils can exercise their own discretion in such cases. It seems to be a matter between county councils and their electors.

Mr. Thorneycroft: Is my right hon. Friend aware that in the case of Monmouthshire there is a subvention from the Treasury to assist the rate fund, so that the Exchequer, public funds and the poorer ratepayers will have to pay the rents of these well-paid steel workers?

Mr. Brooke: Whether or not the county council is wise in what it is doing, I am not quite clear, but the law gives me no responsibility in the matter.

Mr. J. Griffiths: Since public money has been invested to a very large extent—without any protest from the benches opposite—in building the steel works at Llanwern, is it not appropriate that some money should be used to provide houses for the workers as well?

Mr. Brooke: I am not going to commit myself. I believe in local authorities having discretion. Sometimes they use it wisely and sometimes less wisely.

Rents

Mr. Sorensen: asked the Minister of Housing and Local Government and Minister for Welsh Affairs, in view of the fact that estate and property invest-

ment companies, dealing with working-class domestic property, have offered financial inducements to controlled tenants to vacate their dwellings, and that in such instances rents have subsequently been raised for new tenants of such dwellings by 100 to 150 per cent., if he will introduce legislation to protect new tenants in such circumstances.

Mr. H. Brooke: No, Sir. To reimpose control on houses or flats which have become decontrolled would be a sure way of bringing it about that when next they fall vacant they would be sold and not let.

Mr. Sorensen: Is not the right hon. Gentleman aware of the letter that was sent to him by the Lea Bridge Tenants' Association—in my constituency of Leyton—about an investment company operating in this way? Surely it was not his desire or intention that the rents of decontrolled houses for working-class tenants should rise by 150 per cent. or 200 per cent.? Cannot he take some action in this matter?

Mr. Brooke: What matters is not the percentage increase in the rent but its level now. If the owners ask for an excessive rent they will not get tenants.

Mr. Sorensen: In view of the unsatisfactory nature of that reply, I beg to give notice that I shall raise this matter at the earliest opportunity.

Oral Answers to Questions — EAST AFRICA

Democratic Institutions

Mr. Hector Hughes: asked the Secretary of State for the Colonies if he will make a comprehensive statement of his plans for the development of representative and democratic institutions in the countries of East Africa for which he is responsible.

The Secretary of State for the Colonies (Mr. Iain Macleod): As has been made clear on a number of occasions, Her Majesty's Government's policy in respect of the East African territories is to build self-governing nations within the Commonwealth based on representative parliamentary institutions and on a general acceptance that every race and community have the right to maintain their homes there and to play their part in public and economic life.
In Tanganyika there will be an elected majority in the legislature following the September elections and, with effect from 1st October, a new Council of Ministers with ten unofficials, including a Chief Minister, with two Civil Service Ministers and a Deputy Governor. Her Majesty's Government's aims for Kenya are set out in Cmnd. 960. As regards Uganda. I would refer the hon. and learned Member to the Governor's statement in the Legislative Council on 22nd February, 1960, copies of which are in the Library.
A Commissioner is at present conducting a review of the present constitution of Zanzibar.

Mr. Hughes: Does the right hon. Gentleman realise that his clear and detailed description is bound to do a great deal of good in clearing the air in East Africa? I thank him for it.

Mr. Stonehouse: Is the Colonial Secretary able to add to his statement in regard to Uganda? Will he use this opportunity to make it absolutely clear that the advance towards a fully democratic constitution will in no way be impeded by the vested interests of feudal and tribal authorities?

Mr. Macleod: I do not know on which point the hon. Member would like me to amplify my statement in relation to Uganda, but next month I am going to receive a representative deputation from the Legislative Council of Uganda, and I have also invited representatives of the rulers to come to see me, if they wish to do so. I think it only right to hear all points of view in considering this important advance for the country.

Oral Answers to Questions — MALTA

May Day Demonstration

Mr. Brockway: asked the Secretary of State for the Colonies on whose authority the police instructed youths to remove the Labour Party ties they were wearing when attending the May Day demonstration in Malta on 1st May, 1960.

Mr. Iain Macleod: I am making further inquiries into this incident and will communicate with the hon. Member.

Mr. Brockway: Is the right hon. Gentleman aware that I was there on 1st May and saw these Labour Party ties being removed from boys in the City Square? [Laughter.] While hon. Members on the other side may laugh, is it not time that these "Animal Farm" stupidities were ended under the dictatorship in Malta, where they bring ridicule on the Government even in the minds of the children?

Mr. Macleod: It is a splendid tie. I cannot remember of which school tie it is a copy, but it is an excellent tie. I should like to look closely at this. The wearing of political uniforms is subject to an ordinance, and we all know that in this country and in other countries the wearing of shirts, for example, can obviously come within the definition of a political uniform; but I think that to apply that to ties would be taking it a little far.

Oral Answers to Questions — EUROPEAN COMMON MARKET

Mr. Wyatt: asked the Prime Minister what was the nature of his discussions with the Commonwealth Prime Ministers on the question of the British position in relation to the Common Market.

The Prime Minister (Mr. Harold Macmillan): I would refer the hon. Member to what my right hon. Friend the Home Secretary said in answer to Questions on 17th and 19th May.

Mr. Wyatt: Can we take it that what was always the bogus argument that the Commonwealth did not want us to join in with Europe is now discarded, and that the Prime Minister will now address his energies to seeing that Britain enters the Common Market which even industrialists supporting his own party regard as essential if we are not to suffer great economic hardship in the future?

The Prime Minister: With regard to the particular question, I should prefer not to embroider upon the agreed communiqué issued, or to answer for the other participants. I only draw the hon. Member's attention to paragraph 8, which sets out the views of all the Prime Ministers.

Mr. Gaitskell: As I understand it, Her Majesty's Government are at


present engaged, together with the other members of the Seven, in negotiations with the Six. May we take it that all the Commonwealth countries are being kept very closely in touch with these negotiations, since obviously they may be affected by their outcome?

The Prime Minister: Yes, Sir. That was the purpose of the very wide discussions and almost daily negotiations through the ordinary channels and representatives.

Oral Answers to Questions — CONSUMER PROTECTION

Mrs. Slater: asked the Prime Minister if he will appoint a Minister of Consumer Welfare in view of the recommendations of the Interim Report of the Committee on Consumer Protection.

The Prime Minister: I would refer the hon. Member to the Answer given by my right hon. Friend the Home Secretary to my hon. Friend the Member for Carlisle (Dr. D. Johnson) on 10th May.

Mrs. Slater: Is the Prime Minister aware that those Answers have not been very satisfactory, and that they have been even of a delaying character? Does not the right hon. Gentleman agree that in view of the very quickly changing methods in the marketing of goods in this country and the number of Departments over which the control is spread, it is about time that a Minister was designated to deal with the problems of consumer welfare?

The Prime Minister: That is another question. This is a suggestion that a new Minister should be appointed who will have this function. I would have thought that that was not a good administrative method. What I should have thought would be done was that, as often happens when certain functions are spread over more than one Department, a single existing Minister should be made responsible for them, and this was a matter we examined.

Mr. Gaitskell: Does the Prime Minister appreciate that he himself appointed a Minister of Science, with responsibilities covering many different Departments, and even if he does not feel able to accept my hon. Friend's proposal, would he consider making a Minister of

State at the Board of Trade responsible for the problems of consumer protection and the appropriate co-ordination?

The Prime Minister: I am afraid I was answering what I believed to be the purpose of the Question—that a new Minister should be appointed. I must say that I prefer, in deciding finally, to work on the principle of giving this power to a Minister and not create a new Minister for that purpose.

Oral Answers to Questions — COMMONWEALTH PRSIME MINISTERS (MEETINGS)

Mr. W. Hamilton: asked the Prime Minister whether a firm decision was taken at the recent Commonwealth Conference on the desirability of more frequent meetings of the Commonwealth Prime Ministers.

The Prime Minister: No, Sir. But I think it would be fair to say that there was a general feeling that less time should elapse between Meetings than the three years which passed between the Meeting of 1957 and the one which we have just concluded.

Mr. Hamilton: Would the Prime Minister agree that, from every point of view, particularly in view of the rapidly changing situation, politically, socially and economically, within the Commonwealth, and also in view of the evidence of the very strong feeling about certain developments within the Commonwealth, that more frequent meetings should be undertaken, he should give some lead in this matter very quickly?

The Prime Minister: Of course, I will consider that, and I am in close touch with the Prime Ministers of the Commonwealth on this matter. The hon. Member will appreciate that there are often quite considerable difficulties in arranging the most appropriate time, and that these difficulties, alas, get greater the larger the number of Prime Ministers concerned; but we will do our best.

Sir G. Nicholson: Is my right hon. Friend aware that there will be widespread disappointment, and indeed it would be a severe loss to the world, if the great momentum gained by the last conference were in any way allowed to slacken off or to die down? Will he try


to see that the tremendous success which this conference had will not be allowed to lapse?

The Prime Minister: Yes, Sir; that will be our endeavour.

Oral Answers to Questions — DOUSE OF COMMONS (OFFICES) ACT, 1812

Mrs. Castle: asked the Prime Minister whether he will take steps to amend the House of Commons (Offices) Act, 1812, to enable one of the Ministers serving as Commissioners to answer questions in the House on the work of the Commission as its Chairman.

The Prime Minister: No, Sir.

Mrs. Castle: Is the Prime Minister aware that until the recent debate on accommodation, the Commissioners had not met for seven years, and that during this period the staff of this House were denied the normal rights of trade union negotiation and the right to joint consultations? Does he not think, therefore, that some procedure whereby the Commissioners could be made answerable to this House is urgently necessary in order to prevent these kinds of abuses continuing?

The Prime Minister: No, Sir. I would not have thought that our arrangements should he altered unless there is considerably more support than has already been shown. Mr. Speaker Clifton Brown, I remember, used these words:
…it is not in the best interests of the staff that their conditions of service should be dealt with by means of Questions and Answers in this House.—[OFFICIAL REPORT, 1st April, 1943; Vol. 388, c. 349.]
I have a feeling that that will still be the view of the majority.

Mr. C. Pannell: Even if Mr. Speaker Clifton Brown's words were wise then, does not the Prime Minister think that it would be wise, equitable and just if in 1960 we were to concede to the staff what is conceded outside—the right of trade union bargaining and recognition, which are not recognised in this Palace?

The Prime Minister: That, I think, is another question. I was asked whether we should deal with this by Question and Answer.

Mr. Gaitskell: Would not the Prime Minister agree that a Commission which consists of the Chancellor of the Exchequer, the Law Officers and the Secretaries of State is a singularly inappropriate body for dealing with this problem? Does he not realise that there is a very widespread feeling in the House that full trade union recognition should be granted to the staff employed by the House, and that it is the business of the House to take some interest in those engaged in its service?

The Prime Minister: Of course, the right hon. Gentleman omitted to observe that Mr. Speaker is the Chairman of the Commissioners.

Mr. Monslow: Would not the Prime Minister agree to set up a committee from both sides of the House to ascertain from the staff what they feel about the conditions under which they are employed?

The Prime Minister: I am in the hands of the House, and if the right hon. Gentleman would like through the usual channels to get in touch with the Leader of the House, I am sure that we should be able to discuss that. We only want to do what is the view of the House. I was calling attention to what I thought were dangers if these matters came forward on particular Questions.

Mr. Gaitskell: May I say, in reply to the Prime Minister's Answer to a Question which I put earlier, that of course I appreciated that you, Mr. Speaker, are the Chairman of the Commissioners, but it was the desire of the House that the House should be more closely associated with those whom it employs, and I shall be glad to accept the Prime Minister's proposal.

Oral Answers to Questions — DISARMAMENT

Mr. Frank Allaun: asked the Prime Minister if, in view of the failure of the Paris Conference and all other disarmament conferences since 1922, he will now give a lead to the world through limited disarmament by example, that is, by ending unilaterally the testing, manufacture, and stockpiling of nuclear weapons and closing bases for such weapons in Great Britain.

Mrs. Butler: asked the Prime Minister whether, in view of the failure of the


Summit Conference, and in order to restore hope of peace to the world's people, he will give a new lead by taking steps towards the unilateral nuclear disarmament of Great Britain and a phased programme for the reduction of conventional arms and forces unilaterally.

The Prime Minister: No, Sir. Unilateral disarmament has never been, and is not now, the policy of Her Majesty's Government.

Mr. Allaun: Yes, but would not any risk in this policy be less than that involved in intensifying the nuclear armaments race, which is what we are doing? Secondly, do not these failures occur because the mutual suspicion is so great that neither side genuinely seeks disarmament so much as a military advantage or else a pretext for the breakdown of talks, and therefore only by means of example in deeds can we cut the vicious circle of one Government waiting for the other?

The Prime Minister: As I think the House and the hon. Gentleman knows, this is a matter of controversy. I am encouraged by the degree of support which the Government's point of view appears to be getting throughout the country and in this House.

Mrs. Butler: Would not the Prime Minister agree that the main objective of the Summit was to promote a climate which would encourage both nuclear and conventional disarmament. Is it not important now to circumvent the financial, economic and military forces which are seeking to return to the conditions of a cold war, and would not a lead like this from this country help to create a climate of peace which would make universal disarmament possible?

The Prime Minister: I think the lesson is that we should press forward with the conferences going on at Geneva, especially the one on nuclear tests, which is progressing not badly, and, I hope later, the disarmament conference. But I should not have thought that unilateral action on our part would be the best method to bring our full weight to bear on those discussions.

Mr. Langford-Holt: Would my right hon. Friend bear in mind that a large number of people feel that words are

not enough, in that in 1932 a pact was signed by 52 nations outlawing war and yet within ten years 90 per cent. of those nations engaged in a great war?

The Prime Minister: Yes. I think that is why we have to continue our labours to seek our end—which I think we are all agreed on—by a combination of faith, which we must have, caution and commonsense, which we also need.

Mr. Emrys Hughes: Is not the Prime Minister aware of the eloquent appeal made to him not so long ago by the Leader of the Opposition for unilateral disarmament on bombing tests—for the unilateral banning of bombing tests? Is he aware that "unilateralism" is no longer a word that a very large number of people in this country are afraid of?

The Prime Minister: I do not think I ought to be drawn into discussing issues of that kind.

BUSINESS OF THE HOUSE

The Secretary of State for the Home Department (Mr. R. A. Butler): We have been considering when we should make time available for discussion of the Motion standing in the name of the hon. Member for South Ayrshire (Mr. Emrys Hughes), relating to Mr. Speaker and the rights of Members.
It is proposed to take this Motion as first business on Monday next, 30th May. We hope that it will not occupy an undue amount of time in view of the important debate which is to follow.
[That this House views with regret the failure of Mr. Speaker on the occasion of the Prime Minister's statement on the failure of the Summit Conference to allow questions to be put by any private member not a Privy Councillor or Front Bench spokesman on the Opposition side of the House.]

Mr. Gaitskell: In view of that decision, would the right hon. Gentleman agree to an extension of the time for the debate on the Summit Conference, say by one hour?

Mr. Butler: I think that we had better discuss that through the usual channels. I do not think that it is vitally necessary that this Motion should take a great deal of time.

Mr. Emrys Hughes: Is the right hon. Gentleman aware that I tabled the Motion only out of courtesy to the request of Mr. Speaker? It was not my original intention to propose any action which might result in Mr. Speaker retiring to a Governor-Generalship in Australia.

Mr. Butler: In that case, there is only one logical conclusion from the hon. Member's remarks, that, with the same exquisite courtesy, he should withdraw the Motion.

Mr. Emrys Hughes: Mr. Emrys Hughes indicated dissent.

NEW MEMBER SWORN

Walter Francis John Montagu Douglas Scott, esquire, commonly called the Earl of Dalkeith, for Edinburgh, North.

ADOPTION ACT, 1958 (AMEMDMENT)

3.36 p.m.

Mr. John Parker: I beg to move,
That leave be given to bring in a Bill to amend the Adoption Act, 1958, so as to enable revocation orders to be issued, when so requested, in all cases where a child is legitimised and not only those under section twenty-six of the Act.
The passing of the Legitimacy Act last year has drawn attention to a gap in the Adoption Act, 1958, and I wish to obtain the leave of the House to introduce a short Bill to close that gap.
At present, the law is that if a father or mother alone adopts a child who is illegitimate and subsequently marries its other parent, the child can be legitimised because the adoption order can be revoked. But if the father and mother jointly adopt a child, the adoption order cannot be revoked if there is a subsequent marriage on the part of the parents and they seek to legitimise the child in that way. This seems an unfair discrimination against a small group of people who had hoped to benefit from the provisions of the Legitimacy Act, 1959.
Hon. Members will be aware that, under the Legitimacy Acts of 1926 and 1959, on the subsequent marriage of its parents the birth certificate of a child which indicates that the child is illegitimate is withdrawn, and a new certificate issued in which there is no mention of the fact that the child was born illegitimate. It means that prospective employers and the child himself—if he has not been so informed—need never know of his illegitimacy. This is a great advantage to many people from a family point of view.
As I have said, it happens that when one or other parent alone adopts a child the adoption order can be revoked, the birth certificate with the word "adopted" on it be withdrawn and an ordinary birth certificate be issued for the child. But in a case where both parents jointly have tried to reduce the disadvantages following from illegitimacy by adopting their own child before the 1959 Act came into force, that cannot be done, and the child must continue to have the word "adopted" an its birth certificate throughout life.
If a child has not been told of its illegitimacy in such circumstances it will wonder why it has been adopted, and become even more suspicious if it suspects that its adopted parents are its own natural parents. Thus, where parents jointly have the foresight to try to remove the disadvantage of illegitimacy so far as possible by adopting a child, that child cannot now be legitimised. Where they have not had that foresight the child is automatically, under the 1959 Act, made legitimate on the subsequent marriage of its parents.
This leads to an unfortunate discrimination against a small group of parents who have tried to do the best they could for their children. I ask the House, therefore, to give leave for the introduction of this small Bill, which is designed to remove that discrimination so that in any case where a child which could be subsequently legitimised by the marriage of its parents the adoption order can be revoked.
The Home Secretary was good enough, when I put a Question on the Order Paper, to express sympathy with this proposal and offered to assist it forward if a private Member introduced such a proposal.

Question put and agreed to.

Bill ordered to be brought in by Mr. Parker.

ADOPTION ACT, 1958 (AMENDMENT)

Bill to amend the Adoption Act, 1958, so as to enable revocation orders to be issued, when so requested, in all cases where a child is legitimised and not only in those under section twenty-six of the Act, presented accordingly and read the First time; to be read a Second time upon Friday, 3rd June, and to be printed. [Bill 118.]

ORDER OF THE DAY

FINANCE BILL

Considered in Committee [Progress, 19th May].

[Sir GORDON TOUCHE in the Chair]

Clause 18.—(RESTRICTION OF RELIEF FOR LOSSES.)

3.42 p.m.

Mr. John Diamond: I beg to move, in page 12, line 30, to leave out from "losses" to "in" in line 32.
This Clause deals with restriction of losses and is the first of the anti-tax avoidance Clauses which we reach in the Bill. It would, perhaps, be helpful if, before dealing precisely with the details of the Amendment, I were to attempt to fit it into its background.
This Clause, which is known as the "Hobby Farmers' Clause" deals with losses other than those relating to hobby farmers. It deals with all losses of a hobby kind where the activity is carried on not necessarily for the purpose of making profits. The first question which arises is: why should anyone carry on an activity and deliberately make a loss? Perhaps it would be convenient if, in discussing this Amendment, I concentrated on hobby farmers on the assumption—which, I believe, to be correct—that hobby farmers are by far the most numerous category of hobby losers and that what applies to hobby farmers applies satisfactorily to others.
We are told on the authority of the Royal Commission on the Taxation of Profits and Income, in paragraph 490 of its Report, why hobby farmers are satisfied to make losses. The paragraph says:
It is possible to imagine heavy expenditure on income account ripening into an appreciable gain on capital account.
This is the first Clause to stop tax avoidance which arises through the lack of a capital gains tax and from the inducement to individuals to switch their income account to a capital account to avoid taxation. That is the main reason why the Royal Commission thought that a hobby farmer would be willing to carry on activities and lose money by so doing. In the previous paragraph,


the Commission mentioned two other reasons. The first was
the supply of agricultural produce for his home consumption …
and the second was
the value of which he has improved by liberal expenditure, the amusement that he derives from indulgence in his hobby, the attraction of a 'hedge' against inflation.
There are a large number of hobby farmers who carry on the activity of farming for those reasons without any desire of making profit out of those activities.
The Amendment deals with a very limited point in respect of depreciation of plant and machinery bought by farmers. It is technically known as capital allowance, but more familiarly known: to most of us as depreciation allowance. If I understand it aright, the Clause as drafted is to prevent that depreciation being allowed on new plant bought after the relevant date, but not to prevent depreciation allowed on plant bought prior to that date, to the extent that the depreciation has not been fully allowed for tax purposes.
3.45 p.m.
As the Chancellor explained very clearly on Second Reading of the Finance Bill:
, I have also thought it reasonable that the new provisions …
that is, in this Clause—
should not apply to allowances on plant and machinery bought before this year…"— [OFFICIAL REPORT, 3rd May, 1960; Vol. 622. c. 893.]
The purpose of the Amendment is to alter that so as to stop the Revenue contributing by way of tax relief in respect of the balance of the depreciation allowance which had not so far been allowed. Where the plant or machinery—the estate car, for instance—was bought prior to the relevant date of 5th April this year, and there was an established case of hobby farming, I fail to see why the general body of taxpayers should be required, through the Chancellor of the Exchequer, to contribute to the hobby activities of a particular hobby farmer. I fail to see why that should carry on and why the Chancellor thought it reasonable that that should be the case.
There are other reasons why I should like to press the Amendment which, I

hope, the Government will accept. The first is the evidence produced by the Royal Commission about hobby farmers, going back to 1954. This is not a new point. I have no doubt that there are good reasons, of which we shall be told later, why it has taken about six years to go into the matter. Paragraph 491 of the Royal Commission's Report said that the number of farming loss claims received in respect of individuals and firms amounted to £10 million in respect of 10,000 claimants, an average loss of £1,000. If one looks at the rest of the field, one finds that the comparable loss claims of individuals and firms engaged in profit-making activities other than farming, leaving out companies in both cases, amounted to million. The number of claimants was 6,000 and the average was approximately £500.
So, over the whole field other than that of hobby farming, the average loss was about £500 by firms and partners and in hobby farming alone surely a small part of the total there was three times the rate, and the average loss was twice as great. That strikes one as indicative of a frame of mind not wholly attuned to making profits on a commercial scale and not wholly attuned to playing the game. That, therefore, is the first reason why I put forward this Amendment.
If one brings the information up to date one finds that the position is very much the same. According to the recent Report of the Comptroller and Auditor General—,I am reading from a report in The Times of 2nd December, 1959, but I am sure that it is an accurate report—
Test examination by my officers of repayments of tax by the Inland Revenue suggested that a substantial proportion of the repayments made under Section 341"—
That is, the section that we are dis-cussing—
(particularly to Surtax payers)"—
This is the Comptroller and Auditor-General reporting—
related to farming losses. In a number of cases the losses were of such magnitude in comparison with turnover, and had continued for so long a period, as to raise doubts whether the use of the estate concerned could be properly regarded as farming.

Sir Hugh Lucas-Tooth: Why is the hon. Member for Gloucester (Mr. Diamond) reading from a report in The Times and not from the original Report?

Mr. Diamond: Because it is the only document that I have to hand. I apologise. I ought to be reading from the original Report. Sometimes one has—

Mr. Gerald Nabarro: The point is, is it in the original Report? We cannot find it in the original Report, and, therefore, we must test the veracity of what the hon. Member is saying. He should not come here unprepared.

Mr. Diamond: If that is the best case that the hon. Member for Kidderminster (Mr. Nabarro) has against my Amendment, he had better think of a better argument.

Mr. Nabarro: There will be more in a moment.

Mr. Diamond: I am quoting from the exact wording of the Report as repeated in The Times, and I dare say that is accurate. If the hon. Member wishes to show me in what respect it is inaccurate I will read it all.
The general effect of this is to show that on the figures quoted later in the report the losses on hobby farming to which I referred earlier, the losses of partners and individuals, were running at £10 million in 1952 and went up to £131 million in 1958, and there is a reference particularly to Surtax payers. We have a situation, therefore, where once again we have to doubt very much whether this is a proper field for extending sympathy.
I now turn to the question of subsidy, on which the Chancellor is on very firm ground and I am not, for this is not my field. As I understand the position, let us suppose that the average £1,000 loss made in 1954, a loss which we saw repeated last year, is the difference between £10,000 of running expenses claimed and allowed and £9,000 of sales. Thus, it is a loss of £1,000 after selling produce to the value of £9,000. Let us suppose, to make it simple, that the £9,000 was wholly in respect of lambs. This last year, as we know, the average deficiency payment on lambs was 50 per cent.
Therefore, the case which I am instancing would show that not only is a contribution being made by way of tax-free payments but, in addition, about £3,000 of deficiency payments also came out of the Exchequer to the same hobby farmer. I should have thought that all genuine

farmers would find the hobby farmer a thorough embarrassment. I should have thought that all genuine farmers would be very embarrassed when, in their negotiations on price fixing, they were asked to look at the man next door who was, apparently, managing to run his farm quite satisfactorily and to make a profit in spite of the way the farm was being run.

Mr. J. M. L. Prior: I am finding the hon. Member's argument on the subject of subsidies and deficiency payments extremely hard to follow. Could he elucidate it a little more? Although I am a practising farmer, I could not follow his argument about the deficiency payments at all.

Mr. Nabarro: Nor that about Surtax payers.

Mr. Diamond: It is simple. I am assuming sales of £9,000; that is, the combination of the subsidy plus the actual sales in the market. If the deficiency payment was, as we know it was, running at an average of 50 per cent. on lambs for the whole of last year, that means that there would be £6,000 on sales in the market, and 50 per cent. of that would be £3,000, and that is how one arrives at the total of £9,000. Therefore, the hobby farmer of whom I am talking, who is an example only, would have received £3,000 by way of subsidy from the Exchequer in addition to getting a claim for £1,000 allowed by way of repayment against his other income.

Mr. Prior: In other words, the hon. Gentleman is saying that the hobby farmer in question had nothing but lambs on his place and that all those lambs had a deficiency payment of 50 per cent. paid on them. Is that what he is saying? Hobby farmers would find that most improbable.

Mr. Diamond: This is the Committee stage of the Bill, and the hon. Gentleman will have as much opportunity as he likes to express his remarks fully.
I thought it perfectly simple to suggest that we should assume that it was all lambs. I have taken the case of lambs because, according to the official figures, there was a deficiency payment of 50 per cent. on average throughout the year, and the arithmetic is, therefore, very simple to work out with £9,000 and a loss of £1,000.
The figures may be up or down, but the fact remains—it is very relevant—that, in addition to the hobby farmer claiming direct from the inspector of taxes by way of a repayment on his average loss of £1,000, he has also been in receipt of money from the Exchequer, from the other body of taxpayers, to a very substantial extent out of the £260 million or so per year which we devote to farming subsidies. I repeat that I cannot see why this category of taxpayers should be the subject of special sympathy.
There is a further point, a minor one, and that is in slight correction of what the Chancellor said in his short statement, which was, admittedly, a short statement to describe the situation and not to explain the law. The Chancellor referred to machinery bought, and the section refers to expenditure incurred. The point that I want to make—I am sure that the Chancellor will accept it—is that plant and machinery might have been ordered before 5th April this year, a farm contract having been entered into and expenditure incurred, but the payment might be made after this year. There we have a case where the plant and machinery need not have been delivered until after the Bill had come into everybody's knowledge, and under the Clause as it is drawn the whole of that cost of the admitted hobby farmer will be allowed by way of tax-free payment.
In this respect we are dealing with people who are more concerned to avoid tax than they are to make a profit out of their farming, and it would be very difficult—it is difficult to say when a certain item of expenditure was incurred—to disprove an allegation that an item of expenditure was incurred shortly before the beginning of this fiscal year even though the payment was made after the beginning of the fiscal year. That is not a major point, but it also affects the Clause.
Therefore, I repeat that I have no sympathy, and I invite the Committee to have no sympathy, with an established hobby farmer who has bought plant and machinery prior to the commencement of the Act and who will, unless we alter the Clause in the way the Amendment proposes, continue to be helped by the Exchequer and the general body of taxpayers to carry on his hobby farming.
4.0 p.m.
I am particularly encouraged in saying that by virtue of what the Attorney-General said in his Second Reading speech on the Finance Bill when, with deference, in my opinion he quite incorrectly, and without justification, said:
… this Clause … will operate satisfactorily to stop hobby farming and the promotion of private amenity at the expense of the general body of taxpayers."—[OFFICIAL REPORT, 3rd May, 1960; Vol. 622, c. 1033.]
That, no doubt, is what the Clause is intended to do, and no doubt the Government accept that hobby farmers who promote private amenity at the expense of the general body of taxpayers should be stopped from so doing, but the Clause affects only a tiny margin of the problem. It deals only with those hobby farmers who make a loss, not with the hobby farmer I have instanced who, out of his £9,000 sales, improperly incurs a loss of £8,000 and makes a profit of £1,000.
The whole of the improper expenditure is allowed against income that should be taxed—and which, in any other form of undertaking, would be taxed—but just because "husbandry is a difficult word to interpret, and does not cover the thing properly, the whole of this improper expenditure, which the Attorney-General quite properly called providing
… private amenity at the expense of the general body of taxpayers 
is allowed to the hobby farmer almost entirely.
We are dealing only with the stupid hobby farmer who carries his ingenuity and bravado to the extent of showing and claiming a loss. We are dealing with it only to that limited extent, so why should we have for the hobby farmer the sympathy that the Chancellor had when introducing the Bill, by wishing to continue to put the burden of part of his previously-acquired plant and machinery on the shoulders of the general body of taxpayers? I do not believe that this Committee wants to help in that way, or wants to make an ex gratia payment to the tax dodgers, which the hobby farmers mostly are. I therefore hope that the Committee will accept this Amendment.

The Solicitor-General (Sir Jocelyn Simon): The hon. Member for Gloucester (Mr. Diamond) started by


saying that this Amendment dealt with a short point. I entirely agree, although I do not think that one would have gathered that from the rest of his speech, which went far beyond the Amendment to review the whole issue of hobby farming. The point is a short one, and I propose to deal with it shortly.
In general, this Clause denies relief under Section 341 of the Income Tax Act for losses in hobby businesses—mostly hobby farming—incurred in 1960–61 and latter years. Capital allowances are included in the denial of this relief, but the capital allowances that are denied relief are confined to those in respect of capital expenditure incurred after 5th April, 1960. The Amendment proposes to withhold from relief capital expenditure in respect of plant and machinery whenever the expenditure was incurred.
The very short answer to that proposal is that it would be grossly unfair so to do. It would, in effect, be to deny to a taxpayer relief to which he was entitled to look forward at the time he incurred the expenditure. As to future expenditure, whether of a revenue or a capital nature, he can pick his way. He can do what he wants in the light of the new law; but he can do nothing at all in the light of the new law in respect of expenditure that he has already incurred. Therefore, I repeat, it would be most unfair to adopt the Amendment.
There is a subsidiary point. It has been a general rule in the many amendments in relation to capital allowances that, whether they are in favour of the taxpayer or against him, they should apply only to capital expenditure incurred after the proposed changes were announced. This matter seems to me to fall within the same general principle. But, in the end, it comes back to the fact that it would be grossly unfair to deny a taxpayer the relief to which he was entitled to look forward at the time when he incurred the expenditure.
With all respect to the hon. Gentleman, it is not, to use his words, a question of extending sympathy to the taxpayer, but a question of extending justice to him. I therefore advise the Committee to reject the Amendment.

Mr. Nabarro: The hon. Member for Gloucester (Mr. Diamond) made a number of imputations concerning Surtax

payers, and as they were considered to be in order, and as he quoted from The Times—

Mr. G. R. Mitchison: On a point of order, Sir Gordon. Has the hon. Member for Kidderminster (Mr. Nabarro) been called by you?

The Chairman: No. I thought that the hon. Gentleman wished to make an intervention. I did not realise that he wished to make a speech.

Mr. Nabarro: May I make a speech, Sir Gordon?

The Chairman: No. An hon. Member on the Opposition side wants to make a speech. I call Mr. Millan.

Mr. Bruce Millan (Glasgow, Graigton): The basis of the Solicitor-General's argument for rejecting the Amendment is that when the taxpayer incurred the capital expenditure in the first place he was entitled to look forward to getting capital allowances on the expenditure. That may well be so, but the real basis on which he is getting the capital allowances is that he is engaging in some sort of trade, profession or vocation, and the whole purpose of Clause 18 is to cut out from the normal provisions of the taxation laws people not indulging, on a proper commercial basis, in the particular form of trade of hobby farming or, indeed, any form of trade, profession or vocation—

Major W. Hicks Beach: I have listened with great attention to the speech of the hon. Member for Gloucester (Mr. Diamond), who is very knowledgeable on these matters. As I understand his argument, in certain circumstances the provisions of the Amendment could be used retrospectively for up to six years.

Mr. Millan: I do not think that that is either the intention or the effect of the Amendment. All we say is that a capital allowance should not be continued beyond the point at which it is definitely established that the trade is not being carried on on a commercial basis. If any taxpayer feels particularly aggrieved about this, he has, presumably, a remedy available; he can take such steps as are necessary to put the trade on a proper commercial basis.
That was the implicit assumption on which capital allowances were given in the first place. All that the Solicitor-General is saying is that an injustice to the Revenue and, thereby, to the general body of taxpayers, once perpetrated, must be continued until the capital allowances are exhausted, which is an indefinite process. I therefore hope we shall have the support of the Committee for this Amendment.

Mr. Nabarro: Sir Gordon, I am grateful to you for calling me, and I apologise for my premature intervention. I seek only to controvert what was said by the hon. Member for Gloucester (Mr. Diamond) by means of a quotation from The Times. He pleaded that he had come to the Committee inadequately equipped, but the master document in this matter is readily available on application to the Vote Office. In fact, one of my hon. Friends received three copies, on demand, within seconds.
So that the hon. Member for Gloucester may not be allowed to mislead the Committee by the imputations he made about Surtax payers—the overwhelming majority of whom are honourable people—perhaps we might have the master quotation from the official document, the Revenue Departments Appropriation Accounts, 1958–59. It is headed:
Ordered by The House of Commons to be Printed 16th November, 1959.
Paragraph 23, on page vii, uses these words:
The total amount of the farming losses of individuals and partnerships allowed in the year to September 1958 was about £13.5m., but without a detailed examination, case by case, it is impossible to say how much of this was attributable to surtax payers, or at what rates surtax payable but for farming losses would have been chargeable.
In paragraph 24, in even more significant words—

Mr. Mitchison: Mr. Mitchison rose—

Mr. Nabarro: No, I shall not give way. Last week the hon. and learned Member twice refused to give way to me. Now he can keep his seat until I return to mine.
In paragraph 24, in very significant terms, pointing to Section 341 to which

my hon. and learned Friend referred, it is said:
The term 'husbandry' has been held by the Courts to be of very wide signification"—
I think that that ought to be "significance"; that must be a Treasury word—
and, as the law stands, claims to loss relief in respect of losses which are sustained wholly or mainly in husbandry are admissible notwithstanding that the nature of the activities carried on may be such that losses are virtually inevitable".
In view of that official document, I hold that the imputations made by the hon. Member for Gloucester against Surtax payers, of whom there are several hundred thousand in this country, generally representing the brains of the community, are wholly unwarranted. The hon. Gentleman should withdraw. At all events, my right hon. Friend the Chancellor may be assured that unanimously the Conservative Party will support him in resisting the Amendment.

Mr. Mitchison: I shall not deal with the hon. Member for Kidderminster (Mr. Nabarro) who, with his usual discourtesy, misled the Committee by reading only part of what he purported to be reading. It seemed to me that what he had to say had not much connection, though some, no doubt, with the Amendment that we are now considering.
My hon. Friend the Member for Gloucester (Mr. Diamond) rightly indicated the intention and the effect of the Amendment. I agree with the hon. and learned Gentleman the Solicitor-General when he says that it is really quite a small point. What we are dealing with here are cases in which losses have begun to occur before 5th April. I say "losses" deliberately because, although these allowances are in their nature capital allowances by the provision of the Finance Act, 1954, referred to in the Clause, they are allowed and, indeed, bound to be treated in certain circumstances as revenue losses. I entirely disagree when the hon. and learned Gentleman says that it is grossly unfair to disallow every kind of loss except one and that one kind of loss is the loss of the continuing depreciation allowance in respect of expenditure previously incurred.
In this case, what happens is that the farmer or, for that matter, any other trader—it is not confined to farmers—


who is caught by the provisions of the Clause will have his business interrupted to the extent that he can no longer claim to set off losses in it against the rest of his income. There is no doubt whatever that in the past among those losses year by year have been some of what we call depreciation allowances and these depreciation allowances in some cases—this is the point we are considering—would, if the Clause were left unamended, continue to be treated as losses in the business to be set off against the rest of income.
On this side of the Committee, we fail to understand why there should be this differentiation between one kind of loss and another kind of loss. I agree that there is a certain apparent confusion, though no more than that, between these payments when they are treated as capital allowances and when they are treated as they are by virtue of the 1954 Act as revenue losses year by year.
4.15 p.m.
I will put the matter in the form in which it will actually arise. Let us assume that a farmer or other trader has been buying plant over past years, possibly on a rather liberal scale. He now finds that, although his other losses cannot be set off against the rest of his income, those particular items in a trade where every other loss is not allowed to be set off continue to be set off against the rest of his income. It seams profoundly illogical to treat one item in that way, and I see no reason for it.
It is then said that he was entitled, when he bought the things, to expect that the depreciation would be allowed to run off year by year and be set off against his income from other sources. Of course, that applies to the whole of his business. If that argument is sound, when he started his farming he was entitled to expect that year by year the losses which he may have expected to make in it would be set off against the rest of his income. Yet, for some reason, he is interrupted in respect of other expectations but this particular expectation he must be allowed to continue to the end.
What we suggest is not in the least unfair. It would be extremely unfair to

do anything else. Once the business has ceased to rank for the purpose of setting off losses against the rest of his income, the only logical thing to do is to treat all the losses in the business as something which cannot be set off against other income. Once the decision has been made, there is no other logical course. I say again that what we are dealing with here is losses including these capital allowances which for this purpose are treated as revenue losses. I hope that my right hon. and hon. Friends will support this commonsense view in the Division Lobby.

Mr. Diamond: Since I was challenged by the hon. Member for Kidderminster (Mr. Nabarro), I hope that the Committee will not think it discourteous if I take up the challenge and read paragraph 22 of the Revenue Department Appropriation Accounts, 1958–59. The hon. Member for Kidderminster, somehow or other, could see what was in paragraph 23, but he could not see what was in paragraph 22. I find it difficult to understand why he did not take the extra trouble to refer to paragraph 22 while misleading the Committee in alleging that I had myself inaccurately drawn upon the document. The hon. Gentleman is smiling at me now. I am not smiling at him. I regard a matter of honour as coming before a matter of tax or before the making of a debating point.
Paragraph 22 begins:
Test examination by my officers of repayments of tax by the Inland Revenue suggested that a substantial proportion of the repayments made under Section 341 (particularly to Surtax payers) related to farming losses".
The Solicitor-General dealt very shortly with the Amendment, for a very good reason. It was the only way he could deal with it, by asserting an opinion and avoiding the arguments. I am perfectly content that all the Government side of the Committee should go into the Division Lobby in support of tax dodgers. On this side, we propose to do what we know to be our duty.

Question put, That the words proposed to be left out stand part of the Clause:—

The Committee divided: Ayes 262, Noes 168.

Division No. 89.]
AYES
[4.19 p.m.


Agnew, Sir Peter
Glyn, Dr. Alan (Clapham)
Morgan, William


Allan, Robert (Paddington, S.)
Glyn, Sir Richard (Dorset, N.)
Morrison, John


Allason, James
Goodhart, Philip
Mott-Radclyffe, Sir Charles


Alport, C. J. M.
Goodhew, Victor
Nabarro, Gerald


Amory, Rt. Hn. D. Heathcoat (Tiv'tn)
Gower, Raymond
Nicholls, Harmar


Ashton, Sir Hubert
Grant-Ferris, Wg Cdr. R. (Nantwich)
Nicholson, Sir Godfrey


Balniel, Lord
Green, Alan
Noble, Michael


Barber, Anthony
Gresham Cooke, R.
Nugent, Sir Richard


Barlow, Sir John
Grimond, J.
Ormsby Gore, Rt. Hon. D.


Barter, John
Grimston, Sir Robert
Orr, Capt. L. P. S.


Batsford, Brian
Grosvenor, Lt.-Col. R. G.
Osborn, John (Hallam)


Baxter, Sir Beverley (Southgate)
Hall, John (Wycombe)
Osborne, Cyril (Louth)


Bell, Ronald (S. Bucks)
Hamilton, Michael (Wellingborough)
Page, A. J. (Harrow, West)


Bennett, Dr. Reginald (Gos &amp; Fhm)
Hare, Rt. Hon. John
Page, Graham


Bevins, Rt. Hon. Reginald (Toxteth)
Harris, Frederic (Croydon, N. W.)
Pannell, Norman (Kirkdale)


Bidgood, John C.
Harris, Reader (Heston)
Pearson, Frank (Clitheroe)


Biggs-Davison, John
Harrison, Brian (Maldon)
Peel, John


Bingham, R. M.
Harrison, Col. J. H. (Eye)
Percival, Ian


Birch, Rt. Hon. Nigel
Harvie Anderson, Miss
Peyton, John


Bishop, F. P.
Hay, John
Pickthorn, Sir Kenneth


Black, Sir Cyril
Heath, Rt. Hon. Edward
Pike, Miss Mervyn


Bossom, Clive
Henderson, John (Cathcart)
Pilkington, Capt. Richard


Bourne-Arton, A.
Hendry, Forbes
Pitman, I. J.


Bowen, Roderio (Cardigan)
Hicks Beach, Maj. W.
Pitt, Miss Edith


Box, Donald
Hiley, Joseph
Pott, Percivall


Boyd-Carpenter, Rt. Hon. John
Hill, Mrs. Eveline (Wythenshawe)
Powell, J. Enoch


Boyle, Sir Edward
Hill, J. E. B. (S. Norfolk)
Prior, J. M. L.


Braine, Bernard
Hirst, Geoffrey
Prior-Palmer, Brig. Sir Otho


Bromley- Davenport, Lt.-Col. W. H.
Holland, Philip
Profumo, Rt. Hon. John


Brooke, Rt. Hon. Henry
Hollingworth, John
Proudfoot, Wilfred


Brooman-White, R
Holt, Arthur
Rawlinson, Peter


Browne, Percy (Torrington)
Hope, Rt. Hon. Lord John
Redmayne, Rt. Hon. Martin


Bullard, Denys
Hopkins, Alan
Rees, Hugh


Bullus, Wing Commander Eric
Hornby, R. P.
Rees-Davies, W. R.


Butcher, Sir Herbert
Hornsby-Smith, Rt. Hon. Patricia
Renton, David


Campbell, Sir David (Belfast, S.)
Howard, Hon. C. R. (St. Ives)
Ridley, Hon. Nicholas


Campbell, Gordon (Moray &amp; Nairn)
Howard, John (Southampton, Test)
Robertson, Sir David


Carr, Robert (Mitcham)
Hughes Hallett, Vice-Admiral John
Robinson, Sir Roland (Blackpool, S.)


Cary, Sir Robert
Hutchison, Michael Clark
Robson Brown, Sir William


Channon, H. p. G.
Iremonger, T. L.
Roots, William


Chiohester-Clark, R.
Irvine, Bryant Godman (Rye)
Ropner, Col. Sir Leonard


Clark, Henry (Antrim, N.)
Jackson, John
Royle, Anthony (Richmond, Surrey)


Clark, William (Nottingham, S.)
James, David
Russell, Ronald


Cleaver, Leonard
Jenkins, Robert (Dulwich)
Sandys, Rt. Hon. Duncan


Cole, Norman
Jennings, J. C.
Scott-Hopkins, James


Collard, Richard
Johnson, Dr. Donald (Carlisle)
Seymour, Leslie


Cooke, Robert
Johnson, Eric (Blackley)
Sharples, Richard


Cooper, A. E.
Kerans, Cdr. J. S.
Shaw, M.


Cordeaux, Lt. -Col. J. K.
Kerby, Capt. Henry
Shepherd, William


Corfield, F. V.
Kerr, Sir Hamilton
Simon, Sir Jocelyn


Costain, A. P.
Kershaw, Anthony
Skeet, T. H. H.


Coulson, J. M.
Kitson, Timothy
Smithers, Peter


Courtney, Cdr. Anthony
Langford-Holt, J.
Smyth, Brig. Sir John (Norwood)


Craddock, Beresford (Spelthorne)
Leburn, Gilmour
Spearman, Sir Alexander


Critchley, Julian
Legge-Bourke, Maj. H.
Speir, Rupert


Crosthwaite-Eyre, Col. O. E.
Legh, Hon. Peter (Petersfield)
Stanley, Hon. Richard


Cunningham, Knox
Lilley, F. J. P.
Stevens, Geoffrey


Curran, Charles
Linstend, Sir Hugh
Stodart, J. A.


Currie, G. B. H.
Longden, Gilbert
Stoddart-Scott, Col. Sir Malcolm


Dalkeith, Earl of
Loveys, Walter H.
Storey, Sir Samuel


Dance, James
Lucas-Tooth, Sir Hugh
Studholme, Sir Henry


d'Avigdor-Goldsmid, Sir Henry
McAdden, Stephen
Summers, Sir Spencer (Aylesbury)


Digby, Simon Wingfield
MacArthur, Ian
Sumner, Donald (Orpington)


du Cann, Edward
McLaren, Martin
Talbot, John E.


Duncan, Sir James
Maclean, Sir Fitzroy (Bute &amp; N. Ayrs.)
Tapsell, Peter


Duthie, Sir William
McLean, Neil (Inverness)
Taylor, Sir Charles (Eastbourne)


Eden, John
Macleod, Rt. Hn. Iain (Enfield, W.)
Taylor, W. J. (Bradford, N.)


Elliott, R. W.
MacLeod, John (Ross &amp; Cromarty)
Teeling, William


Emery, Peter
McMaster, Stanley R.
Temple, John M.


Emmet, Hon. Mrs. Evelyn
Macpherson, Niall (Dumfries)
Thomas, Leslie (Canterbury)


Erroll, F. J.
Madden, Martin
Thomas, Peter (Conway)


Farey-Jones, F. W.
Maginnis, John E.
Thorneyoroft, Rt. Hon. Peter


Farr, John
Maitland, Cdr. J. W.
Thornton-Kemsley, Sir Colin


Fell, Anthony
Manningham-Buller, Rt. Hon. Sir R.
Tiley, Arthur (Bradford, W.)


Fletcher-Cooke, Charles
Markham Major Sir Frank
Turner, Colin


Forrest, George
Marshall, Douglas
Turton, Rt. Hon. R. H.


Fraser, Hn. Hugh (Stafford &amp; Stone)
Marten, Neil
Tweedsmuir, Lady


Fraser, Ian (Plymouth, Sutton)
Mathew, Robert (Honiton)
van Straubenzee, W. R.


Freeth, Denzil
Matthews, Gordon (Meriden)
Vaughan-Morgan, Sir John


Galbraith, Hon. T. G. D.
Mawby, Ray
Vickers, Miss Joan


Cammans, Lady
Maydon, Lt.-Cmdr. S. L. C.
Vosper, Rt. Hon. Dennis


Gardner, Edward
Montgomery, Fergus
Wakefield, Edward (Derbyshire, W.)


Glover, Sir Douglas
Moore, Sir Thomas
Wall, Patrick







Ward, Dame Irene (Tynemouth)
Whitelaw, William
Woodnutt, Mark


Watkinton, Rt. Hon. Harold
Williams, Paul (Sunderland, S.)
Woollam, John


Watts, James
Wills, Sir Gerald (Bridgwater)
Worsley, Marcus


Webster, David
Wilson, Geoffrey (Truro)



Wells, John (Maidstone)
Wolrige-Gordon, Patrick
TELLERS FOR THE AYES:




Mr. Finlay and Mr. Gibson- Watt.




NOES


Abse, Leo
Hannan, William
Pearson, Arthur (Pontypridd)


Ainsley, William
Hart, Mrs. Judith
Peart, Frederick


Allaun, Frank (Salford, E.)
Hayman, F. H.
Popplewell, Ernest


Awbery, Stan
Healey, Denis
Prentice, R. E.


Bacon, Miss Alice
Henderson, Rt. Hn. Arthur (Rwly Regis)
Price, J. T. (Westhoughton)


Baxter, William (Stirlingshire, W.)
Herbison, Miss Margaret
Probert, Arthur


Bence, Cyril (Dunbartonshire, E.)
Hill, J. (Midlothian)
Randall, Harry


Benn, Hn. A. Wedgwood (Brist'l, S. E.)
Hilton, A. V.
Rankin, John


Benson, Sir George
Houghton, Douglas
Redhead, E. C.


Blyton, William
Hughes, Cledwyn (Anglesey)
Reid, William


Boardman, H.
Hughes, Emrys (S. Ayrshire)
Robens, Rt. Hon. Alfred


Bowden, Herbert W. (Leics, S. W.)
Hughes, Hector (Aberdeen, N.)
Roberts, Albert (Normanton)


Bowles, Frank
Hunter, A. E.
Robinson, Kenneth (St. Pancras, N.)


Boyden, James
Irvine, A. J. (Edge Hill)
Ross, William


Braddook, Mrs. E. M.
Irving, Sydney (Dartford)
Royle, Charles (Salford, West)


Brockway, A. Fenner
Janner, Barnett
Shinwell, Rt. Hon. E.


Broughton, Dr. A. D. D.
Jay, Rt. Hon. Douglas
Short, Edward


Brown, Thomas (Ince)
Jeger, George
Silverman, Julius (Aston)


Butler, Herbert (Hackney, C.)
Jenkins, Roy (Stechford)
Skeffington, Arthur


Butler, Mrs. Joyce (Wood Green)
Johnson, Carol (Lewlsham, S.)
Slater, Mrs. Harriet (Stoke, N.)


Callaghan, James
Jones, Dan (Burnley)
Slater, Joseph (Sedgefield)


Castle, Mrs. Barbara
Kelley, Richard
Small, William


Chapman, Donald
Kenyon, Clifford
Smith, Ellis, (Stoke, S.)


Chetwynd, George
Key, Rt. Hon. C. W.
Sorensen, R. W.


Cliffe, Michael
King, Dr. Horace
Spriggs, Leslie


Craddook, George (Bradford, S.)
Lawson, George
Stewart, Michael (Fulham)


Cronin, John
Lee, Frederick (Newton)
Stonehouse, John


Crosland, Anthony
Lewis, Arthur (West Ham, N.)
Stones, William


Cullen, Mrs. Alice
Logan, David
Strachey, Rt. Hon. John


Darling, George
Mabon, Dr. J. Dickson
Strauss, Rt. Hn. G. R. (Vauxhall)


Davies, G. Elfed (Rhondda, E.)
MacColl, James
Stress, Dr. Barnett (Stoke-on-Trent, C.)


Davies, Ifor (Gower)
McInnes, James
Summerskill, Dr. Rt. Hon. Edith


Deer, George
McKay, John (Wallsend)
Swingler, Stephen


de Freitas, Geoffrey
Mackie, John
Thomas, Iorwerth (Rhondda, W.)


Dempsey, James
McLeavy, Frank
Thomson, G. M. (Dundee, E.)


Diamond, John
MacMillan, Malcolm (Western Isles)
Thornton, Ernest


Dodds, Norman
Mallalieu, E. L. (Brigg)
Timmons, John


Dugdale, Rt. Hon. John
Mallalieu, J. P. W. (Huddersfield, E.)
Warbey, William


Ede, Rt. Hon. Chuter
Manuel, A. C.
Weitzman, David


Edwards, Rt. Hon. Ness (Caerphilly)
Marquand, Rt. Hon. H. A.
Wells, Percy (Faversham)


Edwards, Robert (Bilston)
Mason, Roy
Wheeldon, W. E.


Edwards, Walter (Stepney)
Mendelson, J. J.
White, Mrs. Eirene


Evans, Albert
Millan, Bruce
Whitlock, William


Fitch, Alan
Mitchison, G. R.
Wilkins, W. A.


Forman, J. C.
Monslow, Walter
Willey, Frederick


Fraser, Thomas (Hamilton)
Moody, A. S.
Williams, D. J. (Neath)


Gaitskell, Rt. Hon. Hugh
Morris, John
Williams, W. R. (Openshaw)


Calpern, Sir Myer
Moyle, Arthur
Willis, E. G. (Edinburgh, E.)


Gooch, E. G.
Neal, Harold
Wilson, Rt. Hon. Harold (Huyton)


Cordon Walker, Rt. Hon. P. C.
Noel-Baker, Francis (Swindon)
Winterbottom, R. E.


Gouriay, Harry
Oliver, G. H.
Woodburn, Rt. Hon. A.


Greenwood, Anthony
Owen, Will
Woof, Robert


Grey, Charles
Padley, W. E.
Zilliacus, K.


Griffiths, David (Rother Valley)
Panned, Charles (Leeds, W.)



Griffiths, Rt. Hon. James (Lianelly)
Pargiter, C. A.
TELLERS FOR THE NOES:


Griffiths, W. (Exchange)
Parker, John (Dagenham)
Mr. Mabon and Mr. Howell.


Hamilton, William (West Fife)
Parkin, B. T. (Paddington, N.)

4.30 p.m.>

Mr. R. H. Turton: I beg to move, in page 12, line 41, to leave out "unless" and to insert "if".

The Chairman: I think that it would be convenient to discuss with this Amendment the Amendment in page 12, line 42, after "was" to insert "not".

Mr. Turton: Thank you, Sir Gordon.
These Amendments deal with the point of where the burden of proof

should he in a case which comes under this Clause. As the Clause is drafted, it will be for the taxpayer to show that the loss which he has suffered does not come within the Clause. We will argue that point later. The question is, should the onus of proof be on the Revenue to prove that the applicant has not made a genuine loss, or should it be on the applicant to prove that he has made a genuine loss?
Normally, under Schedule D it is clear. When a trader comes under


Schedule D the Revenue looks into his business to see whether he is carrying on a genuine trade. The difficulty here is that we are dealing with husbandry, where it is put in Schedule D without being so described as a trade. That, I appreciate, is the problem which made the Chancellor draft the Bill originally with the burden of proof the opposite way to what one would normally expect in a taxing document dealing with justice under the British law.
I think that the difficulty the Chancellor has found is that in certain instances he thinks that expenditure which ought to be classed as personal expenditure is brought into business expenditure. I disagree with a good deal that the hon. Gentleman the Member for Gloucester (Mr. Diamond) said on the previous Amendment. This is not really a farming problem. It is a problem which, I believe, is a general weakness in our tax law. The pity is that under this Clause the Chancellor is not trying to clear up the problem of personal expenditure of all traders and farmers but trying to deal with a particularly small body of people who have had the misfortune not only to have their personal expenditure put wrongly, but who have also suffered a loss.
I may not have put that very clearly, but, in my view, what we ought to be dealing with is falsification of accounts but not in this way, by asking someone, after he has suffered a loss, to prove that he did not intend to suffer that loss. That seems to me to be quite wrong.
I was reinforced in my view when I read a letter in The Times which took exactly the same point. It said:
This is a strange new doctrine and has no connection whatever with the falsification of accounts mentioned above, which, apparently, the Inland Revenue are too inefficient to prevent.
When I looked at the end of the letter I found that it was written by my brother. There is, therefore, good reason for that unanimity of view. If we are to try to do it this way, by disqualifying personal expenditure that is not business expenditure, I suggest that we should get it the right way round and put the onus where it should he.
Under the Clause as it would be amended this would be the procedure. The taxpayer would prove the fact that he had made a loss by his accounts and

in that perusal hope that the Inland Revenue would see that the expenditure column included only expenditure in connection with the trade or business. Then, once a loss was established it would be for the Inland Revenue to prove to the General Commissioners that this was, in fact, not a genuine business. I ask the Chancellor to think carefully on this matter, because I believe that that is the right way in English law and English justice. The hon. and learned Member for Gloucester—

Mr. Diamond: Not learned.

Mr. Tutton: The hon. Member for Gloucester always addresses the Committee with such sagacity, sometimes at length, that I sometimes think that he is "learned". He was right in saying that the difficulty about this Clause is that it does not deal with all hobby farmers, but only with those who make a loss. What he did not say, but ought to have said, was that it also deals with perfectly genuine farmers who make a loss. Because we have the burden of proof the wrong way round, in my opinion, we shall penalise many genuine cases of people who suffer losses.
I assure hon. Members that there is no industry in England which is so subjected to hazard as the farming industry; to the weather and disease and even, some farmers would say, to the annual Price Review that is imposed by the Government on the farmer and which can make all the difference between a profit and a loss to the farmer. For that reason, I think that it is quite wrong to throw the onus of proof the other way round.
I think that there is a great deal of exaggerated talk about this business of what is called hobby farming. I quote from the Report of the Royal Commission on this matter:
In the result, we have come to the conclusion that the complaints against the losses of the hobby-farmer are probably exaggerated ….
I do not say that there are not one or two hobby farmers near London. [HON. MEMBERS: "One or two?"] That is, in fact, where the picture has grown up of hobby farmers, in the London area.

Mr. Diamond: It is not one or two; it is 6,300, according to an Answer of the Financial Secretary.

Mr. Turton: That is the number of claims, some of which are perfectly genuine. I have met gentlemen who have had the misfortune that their herd has suddenly reacted to T.T. and they have had to destroy the whole of the herd. They are in this category. Does the Committee wish to penalise these men? There are men in areas of East Anglia who are often confronted by exceptionally bad rain at the time of the harvest and the whole of their crops are destroyed. They come within this category. Cannot we give these men that amount of justice?
The great argument in favour of my suggestion and against the Chancellor's is that the Chancellor's method of dealing with this problem under this Clause was not recommended by the Royal Commission on the Taxation of Profits and Income. The Royal Commission recommended that we should redefine husbandry, so that when a farmer was accepted under Schedule D he had to show, before he had made either a profit or a loss, that he came within the definition that was later agreed. If we were to do it that way we should get out of the whole of this difficulty of the burden of proof.
What I am trying to avoid by the Amendment is the fact that a man, when he has suffered a loss, is brought before the General Commissioners with the feeling that he is adjudged guilty until he is proved innocent. That is contrary to the principles of English justice and I ask the Committee to alter it.

Mr. Douglas Houghton: We cannot support the Amendment of the right hon. Member for Thirsk and Malton (Mr. Turton). As he has explained, he wants to turn the onus of proof round the other way. The Clause requires the taxpayer to prove that his farming is being carried on with a view to making a profit. The Amendment would put the onus on the Inland Revenue to prove that the taxpayer was not carrying on his business with a view to realisation of profit.
The right hon. Member suggests that his Amendment is in accord with the principles of the taxing Acts. I differ from him on that. If he studies the Income Tax Acts, he will find that, in almost every case, the onus of proof is put upon the taxpayer—" where the tax-

payer proves", or, "if the taxpayer proves". The onus must rest upon the taxpayer to prove his case to the Inland Revenue when it is obviously impossible for the Inland Revenue to do it the other way round. This point was raised by the hon. Member for Aylesbury (Sir S. Summers) on Second Reading and I differ from the view that he expressed on that occasion.
It is true that the Royal Commission made a slightly different recommendation from the provisions of the Clause. Surely, however, the right hon. Member far Thirsk and Malton is wrong in thinking that it made any difference. Although the Royal Commission, in paragraph 494, recommended that there should be a strengthening of the definition of "husbandry", the Royal Commission proposed to do it by defining it as husbandry
carried on on a commercial basis and with a view to the realisation of profits".
That seems to me to be no different from the provisions of the Clause.
I wonder why hon. and right hon. Members opposite are always against the instrument of the Inland Revenue. When we are debating old-age pensions, nobody comes—

Mr. Nabarro: Did the hon. Member not observe that at 4 o'clock last Friday afternoon, after a full day of debating old-age pensions, the principal bellyache of the party opposite produced only 92 Socialist Members in the Division Lobby and that about 150 were missing on their major platform? What a dismal failure.

Mr. Houghton: After that flamboyant intervention—

Mr. Nabarro: A jolly good one, though.

Mr. Houghton: Oh, yes. All the hon. Member's interventions are good, in his own opinion.

The Temporary Chairman (Mr. F. Blackburn): It may have been a good intervention from the point of view of the 'hon. Member for Kidderminster (Mr. Nabarro), but we are getting away from the Amendment.

Mr. Houghton: My comment was on the number of hon. and right hon. Member on the benches opposite. However, I will not pursue that. It is obvious that the farming lobby is being fully supported this afternoon.
I stress once more the kind of problem with which we are dealing. Why is it that of the 10,000 farmers who are making losses, 70 per cent. of them are Surtax payers? Why is it that only men who are rich by reason of their other income make such a mess of their farming operations, have such bad luck or have their stocks destroyed by foot and mouth disease? Why does bad luck seem to strike them more heavily than others? Why is it that one-half of all the farming losses, both in number and in amount, are made by farmers around London? The hon. Member for Horsham (Mr. Gough) represents more people making farming losses than any other hon. Member. Why is it that these things happen that way? It is not just bad luck. It is not a scrap of good hon. and right hon. Members opposite thinking that we are dealing with a marginal problem which cannot be clearly identified as tax avoidance. Clearly, it can.
There are a few other particulars which have been given in this connection which must be taken into account when we consider the Amendment. The number of farming losses has been rising in recent years. The amount of the losses has been rising. The amount of tax relief has been rising. The pro- portion of farming losses among all trading losses has been rising. In face of that evidence, it would be difficult for hon. and right hon. Members opposite to say that these farming losses are genuine bad luck in the course of commercial operations, incurred by farmers who really want to make a profit, because nature, the weather, disease, the Ministry of Agriculture and all the other evils in life work so much against them.
4.45 p.m.
This matter having been highlighted by the Comptroller and Auditor General in the Report which has been quoted, it was clearly the duty of the Chancellor of the Exchequer to do something about it. It is, equally clearly, the duty of the House of Commons to do something about it. It can best discharge the obligations of the moment if the onus of proof rests upon the taxpayer, where it rightly rests and where it can only conveniently rest.
With the safeguards that are provided, I have not the slightest doubt that the Clause, in this respect, will operate fairly

and will be a suitable safeguard for the Revenue, which is being literally milked by hobby farmers, who are using their occupation for amenities—[Interruption.] The hon. Member for Kidderminster (Mr. Nabarro) is in a high state of excitement and readiness to come in with another intervention. I have a rise of tension, too, when I see him in that condition. I must calm myself down, and so must the hon. Member, because I have a few more words to say.
These hobby farmers are literally milking the Revenue. They know that they are doing it. They enjoy doing it. The Amendment of the right hon. Member for Thirsk and Malton now seeks to place on the shoulders of the Inland Revenue the duty of proving what it already knows. In those circumstances, we must oppose the Amendment.

Mr. Nabarro: I at once declare my lack of interest in these matters. I am not a farmer and I have no hobbies. I can, therefore, speak from a dispassionate point of view. I rise only to put one question to my hon. and learned Friend the Solicitor-General. Whether the Committee decides on this occasion that the operative word should be "unless" or "if", undoubtedly a larger number of cases will be heard before the Commissioners.
I am concerned with the fact that if a taxpayer has to take his case to the Commissioners, or if the Inland Revenue takes him there, and if the taxpayer wins, generally at heavy cost to himself, there is no possible means of his recovering his costs from the Inland Revenue. The Inland Revenue fights these cases out of the taxpayers' purse. The taxpayer has no redress whatever.
In that context alone, whether the word is "unless", or whether it is "if", I want my hon. and learned Friend to tell us, if a taxpayer wins his case, how he can get his costs back from the Inland Revenue.

Mr. J. Grimond: I hesitate to come between the hon. Member for Kidderminster (Mr. Nabarro) and the hon. Member for Sowerby (Mr. Houghton), who, when they get a hobby farmer, are like two terriers at a bone. The trouble, surely, is that these provisions are not applied only to hobby farmers. They apply to


all people who make a loss, but who may be liable to be considered as not being genuinely in business.
I have great sympathy with the Amendment. Here again, we are extending what, I admit, already is part of the Income Tax law that the Commissioners will look at the motive behind certain transactions. Most people will feel that this is something which Parliament needs to watch with care.
I should like to address the following question to whoever replies to the debate. While I have absolutely no sympathy with hobby farmers, and, indeed, no one in my constituency is likely to practise hobby farming, what will be the effect of this on other types of business? Are the Government satisfied that, in its present form, the Clause will not result in many people being asked to prove that they have incurred losses on a commercial basis, when they have done so, and that they will not be put to the expense which the hon. Member for Kidderminster has mentioned?
On the face of it, there appears to be a strong case for putting the onus on the Commissioners to prove their case. I agree that it means that they will have to prove a negative. I know that that is always difficult, but is it impossible? I hope that the Solicitor-General will deal not only with hobby farming, but with the general situation, because at the moment the onus is on him to show that it is impossible for the Revenue to prove a negative.

Mr. Geoffrey Hirst: I have a great deal of sympathy with the Leader of the Liberal Party. It is not often that I agree with the hon. Gentleman, but he argued his case extremely well.
I support the Amendment of my right hon. Friend the Member for Thirsk and Malton (Mr. Turton), who stated the case very clearly. Like others, I am not in favour of hobby farmers, but I think that the position has been grossly exaggerated by the hon. Member for Sowerby (Mr. Houghton), who gets so excited about these matters. He is a very good friend of mine in the ordinary course of life and he speaks with great authority on these matters, but it is not good enough for him to say that we all come here "to

have a go" at the Inland Revenue. That is not good enough and it is not the truth.
I come here—and I can claim to have been utterly consistent in these matters —to stand up for certain principles and I will stand up for those principles irrespective of who challenges them, whether from my own side, or from the other side of the Committee. It is such a principle which is now being challenged by this Clause.
There may be precedents for the Clause, but I have heard that too often. I am frightened lest these nebulous precedents gradually become firmer as they are repeated. In the restrictive trade practices legislation we gave away a good deal in this matter of the onus of proof and here is another of those precedents which my hon. and learned Friend the Solicitor-General, and, no doubt, my right hon. and learned Friend the Attorney-General, adore to quote. That is the danger of establishing precedents of this kind in these matters.
The mere fact that it is difficult to deal with these things in the normal way does not give the Government any excuse to say that the onus of proof should be on the other side. They must find some other way out of the difficulty. It is not for me to make suggestions. They have all the people to find out these things, and I have no doubt that there is another way. It is not good enough for the Government to say that, once again, they want to shift the onus of proof. It is that shifting of the onus of proof to which I object.
This is not just a matter of hobby farmers. I admit that it is difficult to define whether a business is carried on on commercial principles, and no doubt the Solicitor-General will make that point. A business may sometimes be carried on with inevitable losses for a certain purpose over a period of years, and it is not good enough that the taxpayer should bear the onus of proof—and that is the subtle point—of showing that the business is being carried on as a commercial enterprise. That may be difficult to show, although he may have perfectly respectable reasons for acting in that way. Nevertheless, he may be put to a great deal of trouble and expense. There is a danger in treating this matter too lightly. This is not just


a matter of being humorous, whatever "milking the Revenue" means—and a peculiar sort of cow the Labour Party makes in that context.
I hope that the hon. Member for Sowerby will forgive me for being blunt. He and I both represent Yorkshire constituencies and understand plain language. We are here concerned with the danger of spreading yet further an attack on a principle, an attack which I strongly abhor. Nothing in any part of the Bill will make up for that attack.

Mr. Anthony Crosland: I recognise the attachment to principle of hon. Members opposite, but, in view of the statement of the right hon. Member for Thirsk and Malton (Mr. Turton) that probably only one or two people were concerned in hobby farming and making such losses, it is difficult to explain the attendance and the vehemence of hon. Members opposite in attacking something which affects only one or two people. Does the hon. Member for Shipley (Mr. Hirst) also take the view that we are discussing only one or two people?

Mr. Hirst: That is nothing to do with me. I have made my speech and I stand by it.

Mr. Prior: While I agree with my right hon. Friend the Member for Thirsk and Malton (Mr. Turton) about the principles behind the Amendment, can the Solicitor-General make it clear that the Clause applies only to Section 341 claims? In other words, if the ordinary farmer makes a loss—and I immediately declare my interest in that I am an ordinary farmer—and if he has no other income against which to set his loss, would the Clause not apply in his case?
It would be very difficult to have the Inland Revenue spying round farms to enforce this provision and I wonder whether we want the Inland Revenue to do that. That is a matter which deserves some consideration.

The Solicitor-General: As one would expect, my right hon. Friend the Member for Thirsk and Malton (Mr. Turton) explained the effect of the Amendment perfectly clearly. Much of the debate has turned on the desirability of treating hobby farmers and hobby traders generally in this way. The hon. Member for Sowerby (Mr. Houghton) who, as my hon. Friend the Member for Shipley

(Mr. Hirst) said, we all hold in great regard, expressed himself quite warmly on the subject of milking the Revenue. That does not arise on this Amendment.
Whether we take the view that there is a milking of the Revenue or not, or whether we take the view that this is the right way to deal with it or not, does not arise on this Amendment. We are all agreed that if there is a case for treating the losses of hobby farmers in the general way that we propose, then it is essential that there should not be any window-dressing and that we should not write in an Amendment which would stultify the effect of the Clause, and that the Clause must be effective. We can then discuss on the Motion, "That the Clause stand part of the Bill". whether it is generally desirable.
Having said that, I will deal with one or two preliminary points, some of which may fall outside the scope of the debate on the Amendment. My hon. Friend the Member for Lowestoft (Mr. Prior) asked whether the Clause applied only to Section 341 claims and the answer is that it does. The hon. Member for Orkney and Shetland (Mr. Grimond) asked about other trades. I am informed by the Commissioners of Inland Revenue that they do not know of many cases of hobby trades other than farming, but there are one or two cases where hobby shop-keeping—to put it that way—has been brought to their notice; but it is by no means prevalent.
5.0 p.m.
My hon. Friend the Member for Kidderminster (Mr. Nabarro) asked about the question of the recovery of costs before the General or Special Commissioners. The answer is that costs are not claimed by or awarded to either party before the General or Special Commissioners. If the taxpayer wins, he does not recover his costs. If the Inland Revenue wins, it does not recover its costs. That applies over the whole of the tax law, and is not specially relevant to this Amendment. I would add that the costs before the Commissioners are not generally very high.

Mr. Nabarro: I am well aware that the point I raised about costs is not only relevant to this Amendment and the Clause—

Mr. Mitchison: On a point of order, Mr. Blackburn. Is the question of


costs relevant to this Clause? I cannot find anything about costs in it. No doubt costs are relevant to any proposed change of the law, but not specially—

Mr. Nabarro: Further to that point of order. I deliberately prefaced my remarks by saying that, if the Committee decided that the word to be inserted was "if", on the one hand, or "unless", on the other hand, in either alternative the question of costs must arise. I claim, therefore, that I was completely in order in attaching it to this Amendment. If you prefer it, Mr. Blackburn, I will raise the matter again on the Question, "That the Clause stand part of the Bill". It will, no doubt, come up many times in this Bill.

The Solicitor-General: It was because my hon. Friend's query seemed relevant to me in the way that he has described that I thought it would be discourteous not to answer his question. That brings me to the main scope and purpose of this Amendment as it was put by my right hon. Friend the Member for Thirsk and Malton.
He said that there is a feeling by the taxpayer that he is being judged guilty until he proves his innocence. In the first place, there is no question of guilt or innocence here at all. The only question is whether he is entitled to claim to set off a loss against his profits. Again I take up with great respect the language of my right hon. Friend. It is not a strange new doctrine. It runs throughout the tax law that the onus of proof lies on whoever tries to establish a claim to relief.
Oddly enough one of the most striking examples is the section of the code which deals with the taxation of woodlands managed on a commercial basis, because there the test is precisely the same one that is laid down in this Clause. It runs
Any person occupying woodland who proves to the satisfaction of the General Commissioners or the Special Commissioners that those woodlands are managed by him on a commercial basis and with a view to the realisation of profits, may elect to be assessed and charged to tax in respect of those woodlands under Schedule D… 
The Committee will see that this is exactly the same test, and the onus is on the taxpayer to show—

Mr. Turton: I thought I had made it quite clear that if my right hon. Friend the Chancellor of the Exchequer was doing what the Royal Commission had recommended, then this point I was raising in my Amendment would not have arisen. In the case of woodlands, the taxpayer has to prove that he comes within the relevant Schedule before he starts operations or is assessed at the beginning of his operations. In this case, the decision comes when he has already sustained a loss. Therefore, the gravamen of the charge against him is that he has to establish that the loss is not an intentional loss.

The Solicitor-General: I meant to deal with that point about the Royal Commission before coming to the main matter. I do not think that the onus was any different in the recommendation of the Royal Commission from what it is under this Clause. The Royal Commission recommended a new definition of husbandry, which is, in substance, the one that we have adopted. The definition was to be amended to
husbandry 'carried on on a commercial basis and with a view to the realisation of profits'.
Thus, a farmer who could not satisfy this test would not be under Case I of Schedule D, and consequently would be outside Section 341. We did not approach the matter in this way solely because we were not limiting the case to husbandry, for it would be quite wrong to treat it as a special case. One could get hobby shopkeeping and one might have other hobby businesses. It seems to me that, under the Royal Commission proposal, the taxpayer would still have to show that he satisfied precisely the same test as is now laid on him under the Clause.

Mr. Geoffrey Stevens: My hon. and learned Friend the Solicitor-General said just now that no question of innocence or guilt arose here, but surely the test is one of motive? I should have thought that in the criminal law improper or evil motive still requires to be proved.

The Solicitor-General: I was going on to deal with what the Inland Revenue has to prove in this case. Oddly enough—and I think that in this I will be supported by all the lawyers in the Committee—my hon. Friend's general statement


is not universally true or even generally true. In today's Times Law Report there is a criminal case where the onus lies on the accused and not on the prosecution. There are certainly many such examples. The general rule, as I understand it, is that a person who makes an assertion has to prove it. As the hon. Member for Orkney and Shetland pointed out, to put on any litigant the burden of proving a negative is a very heavy one, and one that is very difficult to discharge. When it relates to a state of mind of the other party, it is one that is virtually impossible to discharge.
It is from that general approach, the general principle of law, that I believe that this Clause places the onus of proof where it should lie. It is by no means inconsonant with the general law of the land, and it is entirely consonant with the taxation Statutes. I said that the Committee would not wish to stultify the operation of a Clause which is otherwise thought to be desirable.
I say advisedly that this Amendment, if adopted, would largely stultify the operation of the Clause. It is right that a person who claims to be entitled to set off losses against other income should show that the conditions, which have to be satisfied to entitle him to do so, are satisfied. That runs throughout the tax code. The taxpayer is the claimant, and the burden of proving his claim to be well-founded ordinarily falls on the person who puts forward the claim. He who asserts must prove, and it is no departure from principle or practice that the burden of proof here should rest on the claimant.
That applies with particular force in the sort of context which we are discussing, because here the claimant knows all the facts. It is he who knows whether the activity is being carried on with a view to the realisation of profits and on a commercial basis. If, in his opinion, it was not, presumably he will not make the claim. If in his view it was, he will claim, and no doubt, in a case where for some years he has sustained losses, he will seek to show that those losses were incurred although he was operating with a view to the realisation of profits. All these facts are in his possession.
There was great force in the observation of my hon. Friend the Member for

Lowestoft that to put the burden on the Inland Revenue would mean that the taxpayer might well find himself harried by all kinds of inquiries and questions which we all desire, in the interests of the orderly practice of Revenue law, to avoid.
As I said, the burden of proving a negative is always a very heavy one and difficult to discharge, particularly in the sort of context which we have here where we are concerned with what the view of the taxpayer was—his intention, if one likes. I say with all seriousness that if the Amendment were accepted it would largely stultify the operation of the Clause. The time to decide whether we want this sort of provision is on the Question, "That the Clause stand part of the Bill"
I entirely agree with the approach of my hon. Friend the Member for Shipley that on all these questions of onus of proof we should take the matter seriously. I have taken the matter seriously, and, naturally, my right hon. and learned Friend the Attorney-General has given very great thought to it. I ask the Committee not to accept the Amendment.

Mr. Nabarro: I do not want my hon. and learned Friend to suppose that his answer is in any way satisfactory, but as it appears to be more appropriate to deal with the matter on the Question, "That the Clause stand part of the Bill", I will return to the argument then.

The Temporary Chairman: It depends what the matter is to which the hon Member intends to refer.

Amendment negatived.

5.15 p.m.

Mr. Stevens: I beg to move, in page 12, line 43, after "to", insert "research or".
In order to come within this Clause a trade has to fulfil two requirements. They are dual requirements, not alternative ones. The trade has to be carried on
on a commercial basis and with a view to the realisation of profits …
I am bound to say that I personally do not know what a commercial basis is. I agree with my hon. Friend the Member for Kidderminster (Mr. Nabarro) in thinking that the legal profession would have


a good time in the future. Clause 40—the Interpretation Clause—does not help us on this. As I say, the alternative is
with a view to the realisation of profits in the trade.
There are some useful Amendments on the Order Paper in connection with this question. Realisation of profits this year, next year, some time or never. This, I say again, is a dual qualification which the trade has to satisfy. We have been talking so far solely about farming, but there is not a word about farming in the Clause. It applies to any kind of enterprise carried on in a certain manner.
I have in mind particularly one most essential part of British industrial life which very seldom shows a commercial profit. Whether or not it is carried on commercially must be a matter of opinion. Incidentally, there is another difficulty which I see, and that is that later on in the same Clause, at the bottom of the page, it says:
where the carrying on of the trade formed part of a larger undertaking …
I had an Amendment down on that point which the Chair did not see fit to select. I would like my right hon. Friend to clarify
trade as part of a larger undertaking….
Does it mean a subsidiary company, part of a group? If so, I can think of a number of subsidiary companies which are in the parent company solely for the purpose of research and experiment and which would never make a profit, but which, none the less, are essential and vital to the group of companies as a whole. For those reasons, I suggest that the word "research" should be added and that it would cover the point I have in mind.

The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory): I am glad that my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) has raised this point because I think it is a relevant one and one that I should like to make quite clear. I went quite carefully into the question whether a commercial basis would provide more difficulties, but after taking a good deal of advice on the matter I was told, on the contrary, that it ought not to be a difficult basis to establish.
My hon. Friend has raised the point about one concern in a group, or a sub-

sidiary company of the main company, making a loss and going on making losses because it was indulging in an activity like research from which a profit would not be likely to come. A case like that would be completely satisfactorily covered by the present Clause which refers to the undertaking as a whole. If a subsidiary company of a main company made a loss and went on making a loss through research but the main company itself was trading with a view to realising a profit, then the loss of the subsidiary company could be set off against the profits of the main company.
There is the provision in section 20 of the Finance Act, 1953, whereby the main company could make a subvention to cover the loss of the subsidiary company. Clause 18 (2) would not debar that course of action in the case where the main company was operating on a commercial basis with a view to the realisation of profits. Exactly the same situation would arise and the same result could be obtained if instead of the loss-making concern being the subsidiary of a main company it was one company in a group. If the trading activities of the group as a whole were on a commercial scale and with a view to the realisation of profits then the losses of the loss-making members of the group could be set off against the profits of the group as a whole. I therefore hope that I have satisfied my hon. Friend that there is nothing to fear from the provisions of the Clause in the direction which he indicated.

Mr. Turton: I am not at all satisfied with my right hon. Friend's explanation, because I do not regard the definition as dealing merely with subsidiaries. There are certain farmers who are carrying on research and experiments, not on a commercial basis but for the improvement of grazing, for example, or trying out new varieties of cereals. I have taken details of some of these farms. Hon. Members opposite are so keen to sneer at hobby farmers that they forget that some of the people caught by the Clause are the very people who have done most, and will do most, to improve agriculture in this country.
Let me give a few examples. One is of a farm of 104 acres which goes in for research and experiments. In 1957–58 it made a loss of £83 per acre. In 1958–59


the loss was £116 on each one of the 104 acres. Clearly that would come within the definition of the Comptroller and Auditor General of carrying on husbandry notwithstanding the fact that the nature of the activities carried out may be such that losses are virtually inevitable.
The next example is of a market gardener with 110 acres. In 1957–58 he made a loss of £417 for every acre he was farming and in 1958–59 his loss was £472 for every acre he was farming. At first sight it would be said that this man is a hobby farmer but in fact he cannot be, because he is the Minister of Agriculture. I have been quoting the farming results of the research and experimental farms of the Ministry of Agriculture. If they are not hobby farmers, why should that description be applied to a private farmer who is trying to do exactly the same thing? The Chancellor was that "hobby farmer" himself until three years ago. Surely he must ensure that in the Clause he protects the man who is trying to improve land by research and experimentation in agriculture.
If we look back into history we see that all the big developments in agriculture have been conducted by such people. It was people like "Turnip" Townshend and Coke of Norfolk who led the big revolution in agriculture. Is it intended by the tax law in the Clause to cut out these people?
I beg my right hon. Friend to think again about the Amendment, because we are dealing here not merely with subsidiary research. We are dealing with the farmer who is trying to conduct research and experiment. It will be a very long time before such a farmer can ever hope to see a profit. I should like to take the Chancellor to my constituency, where he will see people who are trying to win back moorland and to make it into an agricultural unit. Presumably these would be regarded as hobby farmers, because they are making losses.

Mr. Diamond: The right hon. Member says that these people are trying to make profits in the future by recovering moorland. They are protected by the Clause.

Mr. Turton: I said that they were trying to win back moorland knowing that in all their life time they will be making losses on it

Mr. Diamond: The right hon. Gentleman said that it was with a view to making profits in the future.

Mr. Turton: It is true that in the future profits may be made, but it is a future long beyond our lifetime. I ask hon. Members to think of the redevelopment of land that was agricultural in the Napoleonic wars and which subsequently became derelict in the great depression. These men, by putting in their capital, are trying to win back this land again not merely for commercial purposes but sometimes for experimentation. They are trying to see how they can win back peat and make it into arable land again. Sometimes, and more important, there are social reasons, arising from the fact that villages are dying and that something must be done to save them. I have no sympathy for the so-called stockbroker-farmers around London. I am worrying about how far the Clause will hurt those people who have done so much for rural England.

Mr. Amory: I was not dealing with that aspect but with the aspect raised by my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens). In theory I agree that there could be a case—

The Temporary Chairman: Order. I should be glad if the Chancellor would address the Chair and not his hon. Friends sitting behind him.

Mr. Amory: I am sorry, Mr. Blackburn, and I hope that you will not have to reprimand me for that again. I seem to be acquiring habits from one of my hon. Friends.

Mr. Nabarro: I am glad that I am still called a friend.

Mr. Amory: I think that my right hon. Friend could produce a theoretical case in which an individual might go in for a type of research, almost fundamental agricultural research, with no immediate application to the problem of the land which he was farming. In such a case he might never be within sight of operating an economic unit. But in practice, during the time that I was Minister of Agriculture, I never came across a case of that kind in which a practical farmer or somebody interested in farming went in for a research unit of that type without having any other farming activities at the same time.
I would go the whole way with my right hon. Friend about the advantages of encouraging people who have the means to apply themselves to improving land, and I am certain that this Clause will not interfere with any work of that kind, even long-term work to improve the land, if at the end of the period—if may well be a very long time—the result may be or will be an economic unit.
Going back to the 18th and early 19th century, the great agriculturalists who did so much work in this direction in the Eastern Counties quite clearly had as their objective at the end of the day a profitable undertaking in an economic unit. In our own generation I can think of one wealthy man who has brought tremendous benefit to the Eastern Counties through improving very wide areas of land. He had to carry heavy losses for many years, but at the end of the day he produced a highly economic undertaking. The object of the Clause is to allow that kind of improvement to go on uninterrupted and unaffected in any way, because the realisation of profits will mean that the aim is ultimately to produce economic units.
My right hon. Friend has referred to the Minister of Agriculture and his experimental farms. When I was Minister of Agriculture I took the closest interest in watching the progress towards profitability of the experimental farms. It was very difficult to envisage that many of them would achieve a profit over the whole undertaking, except over a long period, but sections of the undertakings were brought to a state of profitability, and the whole of the background of that research work was to produce a profitable undertaking. I am certain that anyone who is indulging in practical research of that kind, aimed ultimately at an economic project, will be quite safe under the Clause, and I go so far as to say that any practical application of research, if it is to be for the long-term benefit of agriculture, ought to be directed to achieving ultimately some degree of profitability.
5.30 p.m.
My right hon. Friend the Member for Thirsk and Malton (Mr. Turton) in theory could say that if somebody was indulging in pure research not applied in

practice on the farm it could never be profitable. I agree that if there were such a case and it was not applied in any sense to ultimately achieving a profit, that case might be caught, but I have never known such a case. If my right hon. Friend knows of any I hope that he will write to me and let me know. If a stage like that is reached I admit that it would be extremely difficult to argue that that was a trade being carried on or an undertaking on a commercial basis, but I do not believe that any case of that kind, isolated from any application of farming practice would be likely to arise.

Mr. Turton: Is the Clause intended to cover farming on 22 acres with a loss in one year of £15,024? Would that be regarded by any general commissioner as being on a commercial basis?

Mr. Amory: I should not like to say at all until I knew the facts or until I knew how the loss of £15,000 arose. As far as realisation of profit goes, that is not limited in any way to one year. The one year is the carrying on of the undertaking in the year of assessment, and the realisation of profit is the ultimate realisation of profit, but I could not answer my right hon. Friend before knowing the details of what sounds a very strange case indeed.

Mr. Douglas Jay: Suppose that there were such a case, a programme of pure research quite unrelated to profitability? Even though that is extremely desirable, is there any reason why it should be partly financed by the Inland Revenue?

Mr. Amory: If it were, it would open a very wide door, because there are many other desirable activities beyond research which would fall into the same category. Outside farming one might have a subsidiary undertaking where the aim was not linked in any way with commercial practice but might be some artistic aim. It might be a thoroughly worth-while activity but once one included that as a trade for this purpose one would find oneself in a position which would be quite uncontrollable.

Mr. Mitchison: Usually I farm at a loss, and perhaps inevitably, but at the end of a discussion I may find out whether or not I am a hobby farmer. I agree with the Chancellor and I think that the Amendment would go too far.


There are, of course, many farmers who make a most valuable contribution to agricultural knowledge and sometimes to the social life of the countryside by what they discover. They were mentioned in the Report of the Royal Commission on the Taxation of Profits and Income, which struck a balance between the two sides and put down that item as one of the main ones on the credit side.
I have known a good many people who do this kind of thing and I have never known them entirely dissociated from making the farm or whatever it was pay in the long run. I fail to see how interested research, if I may so call it, could be missed by the Amendment. It has to fulfil both the qualification as to a view to profit and as to the commercial basis. There is purely disinterested research and the Minister of Agriculture is not by any means the only person who carries it on. A great many universities do research work in a similar way, but I would not say that that research can possibly be carried on on a purely commercial basis. I believe, therefore, that the addition of these words would not add any considerable class to those who would escape from the perils of the Clause, but that if it did so, it would be likely to acid the wrong people.
I agree respectfully with my right hon. Friend the Member for Battersea, North (Mr. Jay) and the Chancellor in saying that it is not the right way to subsidise research by giving it special fiscal advantages. It is very much better to do it straight, if one can, and that certainly applies when one is considering a special kind of research.

Mr. Stevens: On the basis that the profitability test in appropriate circumstances will be a long-term one and the Clause will cover one or more companies in a group of associated companies, I am satisfied with my right hon. Friend's assurances and I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Sir Henry d'Avigdor - Goldsmid: I beg to move, in page 12, line 44, after the first "trade" to insert:
in that or any subsequent year".
This form of words merely incorporates into law the assurances which my right

hon. Friend the Chancellor of the Exchequer has just given us in reply to the debate on the previous Amendment, and also in a speech on Second Reading when he said:
Farmers who incur temporary losses while establishing an enterprise, building up a herd, bringing back land into fertility or improving it, should be in no danger provided that the enterprise in which they are engaged is one that can be regarded as likely in due course to become an economic undertaking."—[OFFICIAL REPORT, 3rd May, 1960; Vol. 622. c. 892.]
In view of my right hon. Friend's undertaking, the only reason why I think it necessary to move the Amendment is that the time element may be very long indeed.
I do not need to mention woodlands. They are adequately covered by the fact that in order to qualify for Schedule D relief they must be accepted as being worked on commercial lines. Therefore, the implications of a long-term plan are accepted there. At the same time, it is desirable to move a little away from the extremely narrow view of hobby farming which we have been taking up to now. I want to deal particularly with two activities which are by their names suspicious but are in good faith being carried on as businesses with a commercial object.
The first is the breeding of race horses. Whatever our views about racing, and we had a full discussion on it yesterday, there is no question that the breeding of race horses is a serious commercial undertaking both in this country and in Ireland. It is recognised as such by the Inland Revenue, but my point is that it is essentially a long-term activity. It is significant that the great foundation mare Pretty Polly which won a race in 1904 did not have descendants of classical ability until nearly 50 years later. If, next Wednesday—as most of the hon. Members of this Committee are unlikely to be able to do—we were able to be present at Epsom Downs we might see the right hon. Member for Woodford (Sir W. Churchill) leading in a winner who is a descendant of Pretty Polly, a mare born in 1901.
I bring out that point because it seems to me that it would be open to an inspector of taxes to say to the breeder who is attempting to establish a line, "You have gone on making losses for


10, 12 or 15 years. Where is your commercial justification?". I think it is as well to have it on the record that perseverance for 30 or 40 years sometimes brings its reward.
Another aspect is the garden run on commercial lines. I am thinking of one of the greatest gardens in this country. Once again, the Members of the Committee are unlikely to be allowed to see its produce at the Chelsea Flower Show, but this is a garden with a turnover of £30,000 a year. It has a large export business, and it is run at a small profit. There is, therefore, no loss claimed, but whether it runs at a profit or at a loss depends on the weather, and on the many other hazards facing horticulturists.
The point is that that garden has come to maturity over a period of 40 to 50 years, and the breeding of hybrids and in-breeding was not a commercial proposition at the beginning. In fact, it is clear that if it had been started as a commercial undertaking it might have been abandoned, but, because it has been carried on for fifty years it is now a commercial undertaking. It is important that it should be recognised in that case that a commercial garden is not only a possibility, but is one of the greatest adornments of this country, and one of which we should be proud.
Although my right hon. Friend has given this assurance, which I consider to relate mainly to the short term, I am sure that he will accept also that there are activities which need considerably longer than a few years to bring them to successful fruition, and I hope that he will accept the Amendment.

Mr. Houghton: We on these benches do not like the Amendment.

Mr. Nabarro: What about the National Coal Board?

Mr. Houghton: Either the words which the Amendment proposes to insert are superfluous, or hon. Gentlemen are up to no good, and I have yet to discover which it is. Subsection (5) says:
For the purposes of this section the fact that a trade was being carried on at any time so as to afford a reasonable expectation of profit shall be conclusive evidence that it was then being carried on with a view to the realisation of profits.

That seems to be pretty wide, and indeed the words which come before the words which it is proposed to insert are also pretty wide, because the subsection says:
… carried on for that year of assessment on a commercial basis and with a view to the realisation of profits in the trade …
The Amendment proposes to insert the words:
in that or any subsequent year".
I suppose it is possible that a taxpayer would say, "I expect to make profits in the year "dot", so I do not want any argument from you that I am not in business to make a profit. It may be that I shall not make a profit in my lifetime. I will hand on my losses to my heirs and assigns and one fine day a profit will come up."
5.45 p.m.
That is stretching the matter too far, and let me remind the Committee of the very modest expectations of the Royal Commission when it made its recommendation on which this Clause is based. Paragraph 496 of the Report says:
… we should not expect our recommendation to bring about any considerable change in the present position, or markedly to reduce the volume of loss claims in respect of farming. But it will be of considerable assistance to the Revenue in putting out of court claims in respect of farming activities which can be seen clearly to lack commercial inspiration and to be nothing more than hobbies or private amenities.
I do not believe that the Clause will go any further than the Royal Commission's expectation, so why are these attempts being made to circumscribe, restrict, confine, and make more difficulties in the operation of the Clause? Either right hon. and hon. Gentlemen opposite want to stop this racket, or they do not. I am coming to the conclusion that they do not, and that they are attempting to put fresh obstacles and difficulties in the way of making the Clause effective. I suggest that if cases arise where there is injustice or difficulty the House and the Committee could attend to them later.
What have farmers to fear from the general commissioners in farming communities? Most of the commissioners in these areas are fully appreciative of the value and significance of farming. Many of them are farmers themselves. Mostly they are landowners and farmers of the landed gentry. It is only recently that we have had an ordinary worker as a local commissioner, and I think that only


about thirty-five of them have been appointed so far. There are a few doctors, a few shopkeepers, and a few businessmen, but I doubt whether they are in agricultural districts.
Surely the protection which farmers will have from the wisdom—to put it no higher—of the general commissioners for their areas will be enough to safeguard them from injustice or bureaucracy. We regard the Amendment more with suspicion than with approval.

Mr. Nabarro: Before we pass from the Amendment, will the Chancellor of the Exchequer clarify one point which makes it very difficult for several of my hon. Friends to judge the merits of the Amendments on the Notice Paper during the deliberations on this Clause? Are the nationalised industries included in the provisions of Clause 18? Does the Amendment in the name of my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) apply to the National Coal Board or to the British Transport Commission?
My hon. Friend drew attention to the length of time sometimes required to bring investments to profitable fruition. He instanced Pretty Polly, in 1904, and the winner of a race this year. That is a span of more than half a century. My hon. Friend instanced woodlands and the length of time it has taken to bring that to profitable fruition. Is it not indubitably the fact that it may take a long time to bring investment in the Coal Board to profitable fruition? It is losing money year by year, and so is the Transport Commission. That is why £80 million was transferred above the line in this Budget.

Mr. E. G. Willis: It is not run as a hobby.

Mr. Nabarro: That is what I am wondering. Is it a hobby?

Mr. Willis: What is it set off against?

Mr. Nabarro: The hon. Gentleman asks what it is set off against.

Mr. Mitchison: The whisky board.

Mr. Nabarro: Not the whisky board.
May I relate the matter to farming for a moment? The Coal Board holds tens of thousands of acres of farms in the North-East. We therefore have the paradoxical situation that the parent

undertaking—coal mining—makes a heavy loss, but its farms make a profit, so the profit is set off against the loss.

Mr. Willis: It does not come under this Clause.

Mr. Nabarro: I am not so sure. The hon. Member is pontificating on abstruse taxation points. This is not only a matter of hobby farming. Are the nationalised industries included or excluded, especially in relation to the words of the proviso to subsection (1), which raise considerable dubiety in my mind and in the minds of some of my hon. Friends? The proviso contains the words:
in the exercise of functions conferred by or under any enactment (including an enactment contained in a local or private Act).
All the nationalised industries are operated under enactments. Will my right hon. Friend therefore tell me whether the Coal Board is included and, if so, what his view is on the Board's farms, consisting of tens of thousands of acres.
I am not sure whether these farms make profits or losses, because they do not publish individual and separately audited accounts, but after this debate I shall be asking many Questions on the subject of the Coal Board's being adjudged a hobby farmer, especially in view of the criticisms made by the hon. and learned Member for Ketteripg (Mr. Mitchison).

Mr. Grimond: I agree with the hon. Member for Sowerby (Mr. Houghton). We may be pursuing marginal matters, which can be looked after by the Commissioners. Nevertheless, it is our business to make sure that we are passing laws which we understand. Doubts were raised in my mind by the Chancellor's answer to the right hon. Member for Thirsk and Malton (Mr. Turton). He underestimates the position of some farmers who have undertaken breeding which has only the remotest possibility of being either on a commercial basis or of realising a profit, but which has benefited the general state of farming very considerably. I can give the right hon. Gentleman the names of two men—admittedly, rich men—who, largely as a hobby, carried on systems of breeding which were useful but which I very much doubt yielded a profit.
As the right hon. Member for Battersea, North (Mr. Jay) says, there may be no reason why the Exchequer should assist such people, but we should hear from the Chancellor whether he intends that these people shall be excluded by the Clause as hobby farmers. I was not quite certain from his answer what view he takes.
Further, the definition that the undertaking has to be carried on on a commercial basis, and with a view to the realisation of profits, is a difficult one to interpret. I do not suppose that any of my crofting constituents are likely to be affected by the Clause, but it could be said that many of them run their crofts not on a commercial basis but as ancillaries to other employments, and if that is part of the test they may be excluded from the assistance given by the Minister of Agriculture to genuine agriculturists. I gather that that is unlikely to happen, but it is difficult to find a satisfactory definition.
If the Clause goes through without further scrutiny there is some danger that those whom we may call farmers of an individualistic outlook may be urged to conform. One of the people I have referred to, who has done a certain amount of good to agriculture by breeding, was strongly advised by the Ministry not to carry on that work. No doubt on a strictly legal basis the Ministry was right. Nevertheless, he went on with it and discovered certain valuable facts, largely as by-products of his hobby. The Chancellor should tell us whether these people are intended to be caught by the provisions—and I could understand it if that were his intention—or whether they should carry on as at present.

Mr. Amory: I did not agree with what the hon. Member for Sowerby (Mr. Houghton) said in his references to the Amendments and the interventions of my hon. Friends. Each of my hon. Friends' arguments was entirely relevant to the Clause, and I aim very glad that they raised the points they did, because they merit consideration.
I turn, first, to the remarks of my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid). I understand that the object of the Amendment is to make sure that the Clause cannot be read so that the words "realization

of profits" could be limited to the earning of profits in the year of assessment in respect of which the claim to relief is made. The words "for that year of assessment" relate to the trade being carried on, and not to the realisation of profits.
The phrase is the same as that used in other Income Tax Acts to cover cases where the aim is the overall realisation of profits in the long term. A particular example is Section 125 of the Income Tax Act, 1952, relating to the occupier of woodlands. It was recognised that in the case of woodlands it takes a long time to realise profits, yet the aim is the ultimate earning of profits.
My hon. Friend the Member for Walsall, South also raised the question of stud farms, and rightly called them serious commercial undertakings. Anybody who knows how stud farms are conducted, and the nature of their business, knows that such business is likely to result in a series of losses for a number of years, offset with occasional years of good profits—if all goes well. Stud farms are often run in conjunction with ordinary farms, but I want to make it clear that, in any case, in any adjudication the nature of the business, the general experience and the profitability prospects will be taken into consideration. Such a business will be treated as a long-term business, where the aim is the eventual earning of profits.
My hon. Friend also raised the question of gardens. There are different kinds of garden. In respect of gardens in historic houses which are open to the public the definition already in force is the same as that contained in the Clause, namely, that the garden must be managed on a commercial basis with a view to the realisation of profits. Those gardens will be unaffected by the Clause, because it restates the wording of Section 124 (2) of the Income Tax Act, 1952, which already applies to such gardens.
In the case of gardens which are more of the market garden type, where produce is sold, the present definition is that the land must be occupied as a nursery or garden for the sale of the produce. The wording of the Clause will relate to such gardens, but there the practice already is to consider the sales of the garden, and the Inland Revenue authorities disallow expenditure when the sales


are insignificant compared with the expenditure. In all other cases, where already a reasonable effort is made to expand and to maximise sales with a view to the eventual earning of a profit, such a garden will not be interfered with.
I think that my hon. Friend will find that this Amendment is unnecessary, because the cases he is worried about will not, in fact, be endangered by this Clause. If I were to accept the Amendment, it would cast doubt on the meaning of this definition, which is included in this Clause and also in other provisions of the Income Tax Acts, where it works perfectly satisfactorily, judging by the small number of complaints and appeals that are made against it. I hope that my hon. Friend, having listened to what I have said, will feel that the Amendment is unnecessary and redundant, and that he will not wish to press it.

6.0 p.m.

Mr. Nabarro: Would my right hon. Friend reply to my questions about the nationalsed industries?

Mr. Amory: I am sorry. My hon. Friend raised the question whether the nationalised industries can be caught as hobby farmers. It is an interesting point, and I own that I have not considered it at all closely before this debate.
If I remember rightly, the statutory duty of a nationalised industry is to ensure that its income and expenditure are balanced, taking one year with another. As the balancing of that income and expenditure includes the servicing of the capital, and, therefore, to service their capital these industries have to earn what would ordinarily be regarded as profits, because it would influence the whole of their capital, then a nationalised undertaking as a whole could be regarded for this purpose as operating on a commercial basis with a view to the earning of profits. If that were so, but the industry still had a subsidiary undertaking that made a loss, as I explained on an earlier Amendment, it would be able to set off that loss against its profits, if any, on the main undertaking.
May I also reply to the point which the hon. Member for Orkney and Shetland (Mr. Grimond) raised with me about breeding, to which I am sorry I

did not reply? I say again that, taking the long-term aim, I believe that if any breeding establishment in agriculture is to be sound in its aim and operations, it should set itself the ultimate aim to produce stock for economic operation on a farm. Any breeding establishment of the kind I have come across in farming should be all right, if it has that aim, but if it is indulging in fundamental breeding research of a kind which we can expect to find in a research unit and not on an experimental farm, it would be questionable.
The hon. Gentleman also raised the question whether the definition that we have selected here is the most satisfactory one. All I can say there is that the Royal Commission paid a good deal of attention to that, and, I believe, devoted a good deal of time to it, and eventually decided that the phrase,
on a commercial basis and with a view to the realisation of profits 
was the best practical definition it could give.

Mr. Mitchison: Would the right hon. Gentleman consider the proviso to subsection (1)? The proviso seems to me to cover any question of the nationalised industries, because all of them must be exercising
functions conferred by or under any enactment".
If, unlike so many of them, they were making losses, the losses would not be included in the losses covered by the Clause.

Mr. Amory: I believe that the hon. and learned Gentleman is right on that. I got a little bit off course when I was talking about agricultural subjects, and I overlooked that proviso which provides for the operations of statutory undertakings.

Mr. Nabarro: Will my right hon. Friend please clarify this matter? Before the hon. and learned Member for Kettering (Mr. Mitchison) intervened, he had assured me that the Coal Board and its subsidiaries would come within this Clause. I raised the point concerning the proviso to subsection (1) in exactly the same way as the hon. and learned Gentleman has now raised it again. Now the Chancellor of the Exchequer says exactly the opposite—that the nationalised industries are excluded from this Clause.
This is a point of some substance. I am not fooling about, I assure my right hon. Friend. The Coal Board happens to own and operate tens of thousands of acres of good farm land in the North-East. Nobody is in a position to say—and I shall press this point later—whether the farms operate at a profit or a loss. The reason for that is because there are no separate and individual accounts published for the farms. The historical origin of the farms is well known. They were bought in the days before nationalisation as a hedge against possible consequential claims for subsidies. I want to find out now, especially in view of what has been said from the benches opposite about hobby farming, whether the Transport Commission, the Central Electricity Generating Board and the Coal Board come within this Clause. If my right hon. Friend cannot answer specifically now, will he give a detailed explanation on the Question "That the Clause stand part of the Bill?"

The Attorney-General (Sir Reginald Manningham-Buller): I thought that my right hon. Friend the Chancellor had given my hon. Friend a very clear and conclusive explanation. Indeed, he gave two, both consistent and both to the same effect.
When my hon. Friend asks whether a nationalised industry comes within the Clause, that is a rather ambiguous question. To start with, I say that my right hon. Friend made it quite clear in the first part of his reply to my hon. Friend that the nationalised industries should satisfy the provision by showing that their trade was being carried on on a commercial basis and with a view to the realisation of profit in the trade. That was his first answer, and his second answer was entirely consistent with it.
It was to the effect that as they carry out statutory functions, they are not hit by the provision—which in the light of the first answer would none the less not apply—for stopping losses being set off against their income. On both grounds, it is quite clear that they will not be stopped from setting off losses against other income by the provisions of the first part of this subsection.

Mr. Jay: Would the right hon. and learned Gentleman explain to us, in that case, what is the point of the words in

the proviso to subsection (1)? If the point is already covered by the words in the previous Clause, what do these words add to the Clause? It is still obscure.

The Attorney-General: It adds to the Clause quite a little in making it absolutely clear beyond any shadow of doubt, and, as the right hon. Gentleman appreciates, it applies not only to functions under general public enactments, but also to functions under enactments contained in local or private acts.

Mr. Nabarro: I must ask my right hon. and learned Friend to consider that here action is being taken against the stockbroker farmer—there have been many complaints about this—on the grounds that he is making a loss on his farming activities and seeks to set it off against alternative income. There is one law for him, but if the Coal Board made a loss on its farm for several years, and sought to set off the loss on the farm against the profit, if it ever made a profit, on its coal mines, we should have the situation that there is one law for the stockbroker farmer and another for the Coal Board farmer, because the nationalised industries are said to be excluded from the provisions of this Clause, and the farms concerned in the North-East, which are very substantial farms, are part of that nationalised industry.
My right hon. and learned Friend cannot have it both ways. [HON MEMBERS: "Nonsense."] It is not nonsense. These nationalised industries are operating very many undertakings which are not exactly in accord with their primary functions and principal production. In this context, there are Coal Board farms which might well make losses in future years and then seek to to set off those losses against the profits incurred. On these grounds, I suggest to my right hon. and learned Friend that there is a very real inconsistency. Why does he attack private taxpayers for doing the same thing and yet let off the nationalised industries?

Mr. G. B. Drayson: I wish to put to my right hon. Friend the Chancellor the case of a widow who inherits farm property, or whose husband has been farming the property before his death, and who finds it necessary to appoint a manager to carry on the work


previously done by her husband. As a result of the employment of a manager at a good salary—we are anxious that such managers should receive as high a salary as possible—the farming activities might show a loss. In actual fact that loss would he caused by the salaries of the manager and staff.
In some such cases the widow would have an investment income, or some other kind of income, and might be involved in a scheme for altering the type of farming or carrying out dilapidation improvements so that the manager might take advantage of Government schemes or operate new methods of husbandry. It might, therefore, be a number of years before the farm could show a profit, or there might be cases where a farm would never show a profit.
My attention has been called to such a case by a constituent. Three men are employed and doing excellent work on the property in question, and they are being well paid. But, because of the increase in the staff, the activities carried on have resulted in a loss. It is the wish of the lady concerned to keep her land at a high standard of efficiency, although she is not able to make a profit, so that at a later stage members of the younger generation will be able to take over the farm and enjoy the income now being taken up in paying the manager.
I ask my right hon. Fried to look at this question because there will be a number of cases where the profit is eliminated owing to the salary of the manager, but the Surtax liability of the owner is possibly reduced because she is having virtually to subsidise the farm out of other income in order to ensure that the manager gets a good salary.

Mr. Amory: I am glad that my hon. Friend the Member for Skipton (Mr. Drayson) has raised this practical issue. The presumption behind the case to which he referred is that the widow's husband actively managed the farm during his lifetime and that his services are being replaced by those of a paid manager. In such a case I should assume that, provided the remuneration paid was not fantastic and was related to the work undertaken by the manager and the responsibilities he had assumed, it would not alter the position so far as the widow was concerned. Presumably the farm would still be managed by the manager

on a commercial basis with a view to the eventual realisation of profits and therefore his salary would be a fair charge to set against them.
I can quite understand in such a case that for some years after a paid manager had been appointed the profitability of the farm might not be sufficient to cover his full salary. But provided that the farm was operated on a commercial basis, and was not being overloaded with overhead expenses so that it would never be a commercial proposition, there would be nothing to fear.
If the cost of extra labour was reasonable there would be no danger. If the expense of labour was higher than would normally be the case because it was desired to carry out improvements on the farm, and eventually to improve the land, that again would be a perfectly sound thing to do. It would not interfere with the commercial basis and the eventual realisation of profits. From what my hon. Friend has said I do not think that there would be any danger about a case such as he has described, provided that the salary of the manager was reasonable, but if my hon. Friend would like to send me details, I will look into it.

6.15 p.m.

Mr. Turton: My right hon. Friend has made a serious statement regarding the future of farming operations, if it means that a widow or an owner has to prove that the salary paid to a bailiff is not unreasonable. That would appear to be, against the interests of agriculture.

Mr. Amory: I am sorry; I cannot have made myself clear. I was trying to say that the case outlined by my hon. Friend the Member for Skipton relating to the appointment of a paid manager, would establish a perfectly good claim. Although such an appointment might result in the profits being turned into losses for some years, in the long run it would not prevent the farm from being a reasonably economic unit.
I did not intend to say that a loss caused by a salary being paid would affect the situation. But if a fantastic salary were paid it might become clear as the years went by that never in any circumstances could the farm possibly yield a profit. If, for example, the salary paid to the manager of a 100-acre farm


was £8,000 or £10,000 a year, I should imagine that never in any circumstances could that farm be regarded as a commercial unit. I did not intend anything more in the way of an inquisition than the implication on future profitability of a fantastic salary. I do not think that my hon. Friend the Member for Skipton had anything of that kind in mind.

Mr. Nabarro: Would my right hon. Friend tell the Committee what is a fantastic salary?

Mr. Amory: Really, my hon. Friend must be reasonable in this respect. I indicated just now what I thought would be a fantastic salary—if £8,000 a year were paid to the manager of a 100-acre farm.

Mr. Nabarro: What my right hon. Friend thinks a fantastic salary, or what the Inland Revenue thinks a fantastic salary, is not necessarily what the widow or the owner would think a fantastic salary. Surely my right hon. Friend is not suggesting that the Inland Revenue is to be placed in a position to judge what a bailiff or a manager should be paid?

Mr. Amory: The hon. Gentleman must listen to what I say. I was instancing a fantastic salary which, if continued over the years, clearly would render the farm uncommercial and make it impossible for there ever to be a profit. It is the same with any expenditure. We may mention a salary, but the same argument would apply to any other expenditure over a long term of years. It is the ultimate profitability which must decide whether the farm is run with a view to the realisation of profits.

Mr. Denzil Freeth: My right hon. Friend has used two phrases which please me. He has spoken of the eventual realisation of profits and the ultimate profitability of the holding or trade. Yet, on grounds of which I see the force, he resists adding any such words as "eventual" or "in a subsequent year" or "ultimate" to this Clause because it would not be parallel to Section 125 of the Income Tax Act, 1952, relating to woodlands managed on a commercial basis.
Is my right hon. Friend the Chancellor, or my right hon. and learned

Friend the Attorney-General, saying that, in fact, the parallel is absolutely exact? With woodlands it is possible to see the trees and, so to speak, to see the asset which will be sold and thereby realise the ultimate profit. With farming —except with livestock over a short period—there is no such visible proof of what will be sold. In the case of farming, or some other trade where it is not possible to see the article which will ultimately be sold to create the profit, is my right hon. Friend certain that it is not desirable to add some such word as "eventually" to the Clause?

Mr. Amory: I think I can say to my hon. Friend that I am satisfied of that because it is a question of considering the profitability against the background of the experience and prospects of similar kinds of undertakings. That is exactly what is done in the case of forestry and it will be done in the case of farms. My opinion that this will be all right is reinforced by the fact that the Royal Commission—I am told after considering a number of different definitions—came to the conclusion that this was the right definition to cover cases where profits could not be expected year in and year out, but could be expected ultimately in the light of the nature of the business and the profitability expectations for the kind of business concerned.

Sir H. d'Avigdor-Goldsmid: As my right hon. Friend has learned, it is not given to man to tax and to be loved. As no doubt he will learn, it is not given to man to love and to be wise. I have learned that it is not given to back benchers to find a form of words which is acceptable to the Parliamentary draftsmen of the Treasury. However, in view of the very full assurances which my right hon. Friend gave in answer to my Amendment, I feel satisfied that the spirit of the Amendment is fully met by what he has said, and I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

The Temporary Chairman (Sir Norman Hulbert): If it is convenient to the Committee, the next Amendment, in the name of the hon. Member for Gloucester (Mr. Diamond), in page 13, line 6, at the end to insert:
(2) The last foregoing subsection shall apply to allowances under section three hundred and


fourteen of the Act of 1952 (allowances for certain capital expenditure), being allowances in respect of which an election has been made under the proviso to subsection (1) of section three hundred and twenty-four of the Act of 1952 (manner of granting, and effect of, allowances made by way of discharge or repayment of tax), as it applies to the losses mentioned.
and the Amendment immediately following, in the name of the right hon. Member for Huyton (Mr. H. Wilson), in line 6, at the end to insert:
(2) The last foregoing subsection shall apply to allowances under section three hundred and fourteen of the Act of 1952 (Allowances for certain capital expenditure) as it applies to the losses mentioned.
can be referred to together.

Mr. Diamond: I am grateful, Sir Norman, for that indication.
These two Amendments come at the same point in the Bill. I take it that you have no objection to me formally moving the second Amendment, but not the first? The Second Amendment is the simpler of the two. Perhaps it would be adequate if I dealt with that almost exclusively on the assumption that, if the Government prefer the first of the two Amendments and refuse the second, I could then move the first as that, presumably, would be suitable to my hon. Friends.

The Temporary Chairman: I understand that the hon. Member for Gloucester does not desire to move the Amendment in his name, the first of these two Amendments, but the Amendment standing in the name of his right hon. Friend the Member for Huyton?

Mr. Diamond: Yes, Sir Norman, that is what I endeavoured to indicate, but, as I was explaining to the Committee, if the Government preferred the first of the two Amendments, presumably the second could be withdrawn, with the consent of the Committee, and then the first could be formally moved.

The Temporary Chairman: Order. The hon. Member cannot go backwards. If he is moving the second Amendment he cannot subsequently move the first Amendment.

Mr. Diamond: If it is your Ruling, Sir Norman, that it would be going backwards because they are in that order on the Notice Paper, although they come at

the same point in the Bill, of course I accept it.
I beg to move, in page 13, line 6, at the end to insert:
(2) The last foregoing subsection shall apply to allowances under section three hundred and fourteen of the Act of 1952 (allowances for certain capital expenditure), being allowances in respect of which an election has been made under the proviso to subsection (1) of section three hundred and twenty-four of the Act of 1952 (manner of granting, and effect of, allowances made by way of discharge or repayment of tax), as it applies to the losses mentioned.
This will leave it open to me to move the second Amendment later. Although I am moving the first of the two Amendments, I shall address the Committee mainly on the second one because it is simpler. As to which is more suitable in the view of the Government Front Bench, I do not yet know.
This is a limited Amendment and deals with the exclusion from the restrictions of this Clause of depreciation allowance on agricultural buildings. I read the Clause as meaning what the Chancellor intended it to mean when he said on Second Reading of the Finance Bill:
I have also thought it reasonable that the new provisions should not apply … to capital allowances in respect of farm buildings under Section 314 of the Income Tax Act, because we do not want to discourage the provisions of useful new buildings."—[OFFICIAL REPORT, 3rd May, 1960; Vol. 622, c. 893.]
I read the Clause as being consistent with that wish and not excluding capital allowances under Section 314 from the provisions of the Clause.
The Amendment seeks to include those capital allowances in the restriction provided by the Clause. In short, what it says, as opposed to what the Chancellor said, is that it is wholly unreasonable that, unless the Clause is altered, an adjudged hobby farmer—to the right hon. Member for Thirsk and Malton (Mr. Turton) I explain that I do not mention the genuine farmer because genuine farmers have no problem at all in this connection; we are merely discussing the hobby farmer who is adjudged a hobby farmer under the Clause—should be able to do the following things. He will be able next year, the year after and the year after that to acquire agricultural buildings and, although he is an adjudged hobby farmer, to get Income Tax and Surtax relief from the depreciation on those agricultural buildings.
I stand to be corrected, but I suddenly realise that I have not included investment allowance. The amount of his relief will be eleven-tenths of the cost of the agricultural buildings—one-tenth on investment allowance and ten-tenths on capital allowance. I want to make it quite clear that that one-tenth allowance is an extremely heavy allowance. It is one of the very few categories of capital expenditure which is wholly written off after ten years. Off hand I cannot remember another case.

Mr. Millan: There is no other.

Mr. Diamond: My hon. Friend, from his deep technical knowledge, says that there is not another case. In the case of a motor car there is a much heavier allowance at first, but then one gets a reduced allowance. In this case it is an allowance on one-tenth in each of ten years, plus the one-tenth investment allowance, so one get eleven-tenths allowance at the appropriate rate, and the appropriate rate may be the standard rate or the reduced rate, plus the relevant Surtax rate.
As the hon. Member for Kidderminster (Mr. Nabarro) is paying me the unusual courtesy of listening to what I am saying, may I tell him that since his intervention on a previous Amendment I have been armed with figures given by the Financial Secretary in an Answer to a Question in which the Financial Secretary told us that 70 per cent. of the losses claimed by hobby farmers were claimed by Surtax payers. It is, therefore, reasonable to assume that in 70 per cent. of the cases not only will there be Income Tax at standard rate allowed on eleven-tenths, but a further Surtax relief of about 10s, in the £, and possibly more—

Mr. Turton: I am sure that the hon. Member wants to be fair—

Mr. Diamond: Just a moment. I am in the middle of a sentence. I always give way, especially to the right hon. Member.

Mr. Turton: In a previous sentence the hon. Member said that the losses claimed under Section 314 were losses made by hobby farmers. I am sure that in the interests of genuine farmers he would want to withdraw the statement that 70 per cent. of the cases were in respect of hobby farmers.

Mr. Diamond: What I wanted to do was to give the effective Answer which was given by the Financial Secretary. Perhaps I had better read it. It was as follows:
About 70 per cent. of individuals given relief for farming losses under Section 341 … during the year to September, 1959, were Surtax payers. The amount of extra Surtax that would have been assessed had reliefs not been given is not known.—[OFFICIAL REPORT, 26th April, 1960; Vol. 622, c. 6.]
6.30 p.m.
I am not seeking to be unfair, and I hope that I am being very fair. I started my remarks by saying that the reason I referred only to hobby farmers was that the genuine farmer is not affected by the Clause. He carries on his operations on a commercial basis with a view to making a profit. The Amendment can deal only with the hobby farmer. The genuine farmer is perfectly safe and does not fall within the Amendment at all.
The effect of the Clause as it stands is that the adjudged hobby farmer will in future years be able to put up an agricultural building and to claim eleven-tenths of its cost—110 per cent.—at the relevant Income Tax and Surtax rates which, from the figures that I just gave, might average 10s, in the £.
It does not stop there. In addition, he may be given an improvement grant of one-third of the cost of the building. Thus he may be given an improvement grant of one-third of the cost of the building and on the balance of two-thirds have eleven-tenths of one half, 55 per cent., allowed on Income Tax and Surtax. In other words, the adjudged hobby farmer could receive about 70 per cent. of the cost of putting up these cottages and other farm buildings out of the contributions made by other taxpayers.

Mr. Prior: He would not be given the improvement grant unless it could be proved to Ministry officials that the improvement would have an effect on the profitability of the farm. If it were entirely a hobby farm he would not be entitled to an improvement grant.

Mr. Diamond: I realise that. That is why I was careful to say "may get a grant" and not "will get a grant." Further, any hobby farmer can change from being a hobby farmer into a genuine farmer and, similarly, can change from being a genuine farmer into a hobby


farmer. The test of the two is not the same, and the jury which tests the two is not the same jury. It is conceivable that in addition to being a hobby farmer, which would be known only to the inspector of taxes and would not be self-evident on an official inspection of the farm, he would receive an improvement grant, as well as the claim on Income Tax and Surtax.

Mr. A. C. Manuel: That is absolutely correct.

Mr. Diamond: I am fortified by the hon. Gentleman, who tells me that what I have said is absolutely correct.

Mr. Nabarro: A hobby engine driver.

Mr. Manuel: In view of the fact that there is so much dubiety on the other side of the Committee, I would explain that we have been having some investigation into this in Scotland. We find that very rich landowners, whether they are hobby farmers or not, if they are designating a building for agricultural purposes, and especially if they are improving an old house into which they say they intend to put a worker, receive the improvement grant from the local authority without any question. That applies to any agricultural category.

Mr. Prior: Mr. Prior rose—

Mr. Diamond: Perhaps I may explain to the hon. Member that this is the Committee stage and that he can make his speech a little later.
Having had 70 per cent. of the cost contributed by the Exchequer in one form or another, there is nothing to prevent the man from selling the farm for a profit of at least 100 per cent. of the cost of the building which he has added to it, which profit would escape Income Tax and Surtax. In those circumstances surely a very solid case must be made out before the hobby farmer is entitled to the benefit under the Clause.
We dealt with an Amendment a short time ago which referred to plant and machinery bought before, not after, the coming into effect of the Act, and we were then told that there was one, and only one, justification for it. The Solicitor-General replied to the long debate by giving only one answer. He evidently thought it safer to avoid answering all the other points which I

had put to him. He said that if plant and machinery had been bought on the assurance that it would be treated as allowable for tax purposes, surely it would be unjust to remove that tax relief.
Here we are not talking about that. We are talking about agricultural buildings, the provision of which is not at present in the hobby farmer's mind. They have not been bought and he has not thought of buying them until this debate has taken place, and he now realises that when the Bill has come into effect he will be able, next year or the year after or at any time in the future, to profit himself in this way at the expense of all the other taxpayers, including the regular Schedule E man who pays under P.A.Y.E. and who pays his full, effective rate as the House intends that he should.
The hobby farmer in the future will be able to be adjudged to be carrying on hobby farming and yet have 110 per cent. of his costs allowed at a rate of tax of about 70 per cent., and then sell at a tax-free capital profit. I think that at all events this is something which the Committee does not want and that it would prefer to accept the simple Amendment which puts the matter in order.

The Financial Secretary to the Treasury (Sir Edward Boyle): As the hon. Member for Gloucester (Mr. Diamond) has clearly shown, this Amendment is designed to withdraw from hobby farmers the right to set against income other than agricultural and forestry income capital allowances in respect of capital expenditure on farm buildings and works. He has correctly said that the total amount of this allowance is, in effect, eleven-tenths. This is a point which, as he also rightly said, my right hon. Friend mentioned on Second Reading, when he explained that he had thought it reasonable that the new provisions of Clause 18 should not apply to capital allowances in respect of farm buildings under Section 314 of the 1952 Act, because the Government do not want to discourage the provision of new buildings.
Broadly speaking, there were two considerations especially which brought my right hon. Friend to that conclusion.


First, by any reckoning there is surely a valid distinction to be made between ordinary revenue losses leading to loss claims and allowances for capital expenditure on works and buildings which are likely to last a very long time. It seems to me a perfectly arguable proposition that the kind of code which is appropriate for loss claims is not necessarily appropriate when we are considering allowances on buildings which will last a long time, certainly beyond the life of any person farming the land. Indeed, it is surely very likely that even if the buildings are erected by someone who is a hobby farmer, they will, in the course of their life, be used at some time or another for genuine commercial farming purposes.
I should like to go a little beyond that, and here I want to say a brief word about the two Amendments which we are discussing together. What I imagine will happen, if the hon. Member is dissatisfied with my reply and wishes to press the point to a Division, is that he will withdraw the Amendment which he has moved and move formally the second Amendment, on which we would then take a Division. The first Amendment is not satisfactory, purely for the reason that as a matter of drafting it is not possible to provide for the restriction of allowances under Section 314 by reference to Clause 18 (1), which deals with relief due under Section 341 of the 1952 Act. I therefore think that if we are to have a Division on the subject it would be much better to have it on the second Amendment, which refuses Section 314 allowances altogether.
I would put just one other argument against the Amendment, which is an important one. It seemed to me that throughout most of his speech the hon. Gentleman was thinking primarily in terms of the person who was a hobby farmer and remained a hobby farmer. I think that when considering the Amendment we have to take account of the case —and I am sure that there will be many cases after the Clause has passed into law—where the hobby farmer later mends his ways and puts his activities on a proper business footing. It would be unfair to deny relief in respect of capital expenditure incurred while the farmer was carrying on his hobby farming against farming profits earned later, when he had

altered his practices and had put his activities on a proper basis.
For that additional reason, I think that the Amendment would be unfair and would not, in fact, work out satisfactorily. I therefore ask the Committee to endorse the line that my right hon. Friend took on Second Reading, and to reject the Amendment.

Mr. Millan: I found the Financial Secretary extremely unconvincing on his last point, that the hobby farmer who subsequently became a genuine commercial farmer would be penalised by not having capital allowances for a building that he put up whilst he was hobby farming. Surely that is something that could quite easily be put into the Clause even were my hon. Friend's Amendment accepted. As I say, I find that an extremely unconvincing answer, and I cannot seriously believe that the hon. Gentleman believes it to be a good answer to the case so ably presented by my hon. Friend.
I should like to take up another point advanced by the Financial Secretary. He said that there is a distinction between losses that are on a yearly basis and those that arise from capital allowances for what is a type of long-term loss, because the buildings concerned are likely to last for a long time. The hon. Gentleman also said that it might very well be that the buildings would subsequently be used for genuine commercial farming purposes.
That might be so for the person who originally put up the buildings, but it might also be so because the hobby farmer sold the buildings to a genuine commercial farmer who subsequently used them for genuine commercial farming purposes. One of the points put by my hon. Friend to the Committee was that if that sort of transaction happens it happens because the hobby farmer, having got allowances on the farm buildings, subsequently sells them at a capital profit. He has not been carrying on on a genuine commercial undertaking. From the community point of view, he is really getting capital allowances for nothing at all and is subsequently allowed to sell the buildings for a capital profit. The buildings then become used, as the Financial Secretary says, for genuine commercial farming purposes.
The Amendment is not aimed in any way against the farmer carrying on a genuine business. We are here dealing specifically with those people who have been adjudged hobby farmers, and in that connection there is very considerable justice in the Amendment. I am very surprised, not that the Government have not accepted the Amendment, but that all the arguments for not accepting it have been so weak.

6.45 p.m.

Mr. Mitchison: I regard the Government's deplorable attitude to these two Amendments as an indication of the wrong spirit in which, in some respects, they are approaching the problem. I shall not elaborate the difference between the two Amendments—it does not really matter. The substantial point is whether or not a hobby farmer should be allowed to recover in respect of any agricultural buildings that have been put up, perhaps with a subsidy, perhaps without one—that, again, does not seem to me to matter. I want, however, to deal with the Financial Secretary's two points. There were, I think, only two.
The first was this. The Government would like to see agricultural buildings put up, and for that reason they do not want to prevent the hobby farmer from putting them up. If that is the guiding principle, I wonder what the Clause is doing in the Bill at all. I should have thought that that applied just as much to all the hobby farmer's other activities; and that what the Clause ought to seek to do is to prevent the hobby farmer getting what I may call a revenue advantage out of activities that are not carried on for a commercial purpose or with a view to making profits. That, by and large, is what the Clause is intended to do.
What will happen in this case? Suppose the hobby farmer, in this year or the next, puts up buildings of this kind. He will get the allowances indicated by my hon. Friend the Member for Gloucester (Mr. Diamond), and confirmed by the Financial Secretary. Those are considerable allowances, and they will be set off against his income in other respects. As to the building itself, there is no reason whatever why he should not sell it, with or without the whole of the rest of the farm, at a profit to which

those allowances have contributed. Where is the point in making this peculiar exception to the Clause?
We are told that buildings are very durable, but much depends on what they are. I get the eleven-tenths allowance, or am in the process of getting it, in respect of an exceedingly useful cowshed. It is put up in wood—I hope, quite well put up, but who is to say whether the cow shed or the tractor lasts the longer? We know these implements may last a considerable time, and they are written off over long periods. What is the distinction? It is not so much a question of how long the building lasts, but of how long it takes to write off the building—or the tractor, as the case may be. What logical distinction is there between the two cases?
Again, if it is in the public interest—and this is what I have in mind here—that many of these farms should be run for profit and that if the present farmer cannot or does not choose to run them for profit, they should be handed over, for a consideration, to someone who does want to run them at a profit; if that is in the public interest—and I should have thought that that was one of the possible points behind the Clause—why should the hobby farmer be subsidised because he has put up the building first? I just cannot see it.
We come, now, to the hon. Gentleman's second argument which, if I understood it rightly, was that if there is a change in ownership, or if there is a change in the "hobbyness"—if I may coin the word —or otherwise of the farmer, a man may have put up his building at one period and be disentitled to allowances because he put it up at that period. That is not how I read the Amendment. These buildings are put up, and the allowance is carried forward against farming income or forestry income.
If there is not any income for the purpose—as there will not be, as a rule, in the case of the hobby farmer—it is set off in ten annual instalments against the rest of his income. If he changes his mode of farming, or if the identity of the farmer Changes during that time, then during the period when there is no hobby farmer there the allowance will be paid, but it will not be paid during the period when there is a hobby farmer there. I see nothing unfair in that arrangement,


and it seems to me to be the clear meaning of the Amendment.
I said at the beginning that I regard these Amendments as of very considerable importance, and so I do. These concessions by way of allowances in one form and another on agricultural buildings have been made for some time past. They have no doubt been made by successive Governments—I should be surprised if they had not. But when one considers people who are not carrying on a proper farming business—I am shortening the language—but doing something which does not entitle them to the allowances they would have if they were carrying on a proper farming business, why should they be entitled to the particular advantages which have been given in the interests of what one may call commercial or operative agriculture?
It is a very simple point. This is not a finnicky matter. It is not a question for subtle distinctions. Taking the case of the hobby farmer—there are, of course, others hit by the provisions of the Clause—do the Government intend that the hobby farmer should or should not have tax advantages in respect of

his farm? If they consider that he should not, I understand the rest of the Clause, but I see no possible objection to their acceptance of the Amendment. If they refuse the Amendment, I find the answers given by the Financial Secretary absolutely unconvincing. I see no substance in them at all, apart from their defects of form, if I may so put it. In the circumstances, unless the Government can reconsider their attitude and tell us that they will look into the matter again, I hope that we shall press it to a Division.

Mr. Diamond: In view of the wholly unsatisfactory nature of the Government's reply, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Amendment proposed: In page 13, line 6, at end insert:
(2) The last foregoing subsection shall apply to allowances under section three hundred and fourteen of the Act of 1952 (Allowances for certain capital expenditure) as it applies to the losses merstioned.—[Mr. Diamond.]

Question put, That those words be there inserted: —

The Committee divided: Ayes 172, Noes 242

Division No. 90.]
AYES
[6.53 p.m.


Ainsley, William
Edwards, Walter (Stepney)
Jenkins, Roy (Stechford)


Allaun, Frank (Salford, E.)
Evans, Albert
Johnson, Carol (Lewisham, S.)


Awbery, Stan
Fitch, Alan
Jones, Dan (Burnley)


Bacon, Miss Alice
Fletcher, Eric
Jones, J. Idwal (Wrexham)


Baxter, William (Stirlingshire, W.)
Foot, Dingle
Jones, T. W. (Merioneth)


Bence, Cyril (Dunbartonshire, E.)
Forman, J. C.
Kelley, Richard


Benson, Sir George
Fraser, Thomas (Hamilton)
Kenyon, Clifford


Blyton, William
Galtskeil, Rt. Hon. Hugh
Key, Rt. Hon. C. W.


Boardman, H.
George, Lady Megan Lloyd
King, Dr. Horace


Bowden, Herbert W. (Leics, S. W.)
Gooch, E. G.
Lawson, George


Bowies, Frank
Gordon Walker, Rt. Hon. P. C.
Lee, Frederick (Newton)


Boyden, James
Gourlay, Harry
Lee, Miss Jennie (Cannook)


Braddock, Mrs. E. M.
Grey, Charles
Logan, David


Brown, Thomas (Ince)
Griffiths, Rt. Hon. James (Lianelly)
MacColl, James


Butler, Herbert (Hackney, C.)
Griffiths, W. (Exchange)
McInnes, James


Butler, Mrs. Joyce (Wood Green)
Hall, Rt. Hon. Glenvil (Colne Valley)
McKay, John (Wallsend)


Caliaghan, James
Hamilton, William (West Fife)
McLeavy, Frank


Cattle, Mrs. Barbara
Hannan, William
MacMillan, Malcolm (Western Isles)


Chetwynd, George
Hart, Mrs. Judith
Mahon, Simon


Craddock, George (Bradford, S.)
Hayman, F. H.
Mallalieu, E. L. (Brigg)


Cronln, John
Healey, Denis
Mallalieu, J. P. W. (Huddersfield, E.)


Crosland, Anthony
Henderson, Rt. Hn. Arthur (Rwly p[...]gis)
Manuel, A. C.


Grossman, R. H. S.
Herbison, Miss Margaret
Marquand, Rt. Hon, H. A.


Cullen, Mrs. Alice
Hilton, A. V.
Mason, Roy


Darling, George
Holman, Percy
Mendelson, J. J.


Davies, G. Elfed (Rhondda, E.)
Houghton, Douglas
Millan, Bruce


Davies, Ifor (Cower)
Howell, Charles A.
Mitchiton, G. R.


Deer, George
Hughes, Cledwyn (Ang[...]y)
Monslow, Waiter


de Freitas, Geoffrey
Hughes, Emrys (S. Ayrshire)
Moody, A. S.


Dempsey, James
Hughes, Hector (Aberdeen, N.)
Morris, John


Diamond, John
Hunter, A. E.
Mort, D. L.


Dodds, Norman
Hynd, John (Attercliffe)
Moyle, Arthur




Mulley, Frederick


Donnelly, Desmond
Irvine, A. J. (Edge Hill)
Neal, Harold


Driberg, Tom
Irving, Sydney (Dartford)
Noel-Baker, Francis (Swindon)


Ede, Rt. Hon. Chuter
Janner, Barnett
Noel-Baker, Rt. Hn. Philip (Derby, S.)


Edwards, Rt. Hon. Ness (Caerphilly)
Jay, Rt. Hon. Douglas
Oliver, G. H.


Edward, Robert (Bilston)
Jeger, George
Oswald, Thomas




Owen, Will
Short, Edward
Wainwright, Edwin


Padley, W. E.
Skeffington, Arthur
Warbey, William


Pannell, Charles (Leeds, W.)
Slater, Mrs. Harriet (Stoke, N.)
Weitzman, David


Parker, John (Dagenham)
Slater, Joseph (Sedgefield)
Wells, Percy (Faversham)


Parkin, B. T. (Paddington, N.)
Small, William
Wheeldon, W. E.


Pearson, Arthur (Pontypridd)
Smith, Eills (Stoke, S.)
White, Mrs. Eirene


Peart, Frederick
Sorensen, R. W.
Whitlock, William


Plummer, Sir Leslie
Soskice, Rt. Hon. Sir Frank
Wilkins, W. A.


Popplewell, Ernest
Spriggs, Leslie
Willey, Frederick


Price, J. T. (Westhoughton)
Steele, Thomas
Williams, D. J. (Neath)


Probert, Arthur
Storehouse, John
Williams, w. R. (Openshaw)


Proctor, W. T.
Stones, William
Willis, E. G. (Edinburgh, E.)


Pursey, Cmdr. Harry
Strachey, Rt. Hon. John
Wilson, Rt. Hon. Harold (Huyton)


Randall, Harry
Strauss, Rt. Hn. G. R. (Vauxhall)
Winterbottom, R. E.


Rankin, John
Swingler, Stephen
Woodburn, Rt. Hon. A.


Rhodes, H,
Taylor, John (West Lothian)
Woof, Robert


Robens, Rt. Hon. Alfred
Thomas, Iorwerth (Rhondda, W.)
Yates, Victor (Ladywood)


Roberts, Albert (Normanton)
Thompson, Dr. Alan (Durfermline)
Zilliacus, K.


Robinson, Kenneth (St. Pancras, N.)
Thomson, G. M. (Dundee, E.)



Ross, William
Thornton, Ernest
TELLERS FOR THE AYES:


Shinwell, Rt. Hon. E.
Timmons, John
Dr. Broughton and Mr. Redhead.




NOES


Agnew, Sir Peter
Deedes, W. F.
Jackson, John


Aitken, W. T.
de Ferranti, Basil
Jennings, J. C.


Allan, Robert (Paddington, S.)
Digby, Simon Wingfield
Johnson, Dr. Donald (Carlisle)


Ailason, James
Doughty, Charles
Johnson, Eric (Blackley)


Amory, Rt. Hn. D. Heathcoat (Tivt'n)
du Cann, Edward
Kerans, Cdr. J. S.


Ashton, Sir Hubert
Duncan, Sir James
Kerby, Capt. Henry


Atkins, Humphrey
Duthie, Sir William
Kerr, Sir Hamilton


Balniel, Lord
Eden, John
Kershaw, Anthony


Barber, Anthony
Elliott, R. W.
Kirk, Peter


Barlow, Sir John
Emery, Peter
Kitson, Timothy


Barter, John
Emmet, Hon. Mrs. Evelyn
Lambton, Viscount


Batsford, Brian
Errington, Sir Eric
Leburn, Gilmour


Bell, Ronald (S. Bucks.)
Farey-Jones F. W.
Legge-Bourke, Maj. H.


Bennett, Dr. Reginald (Gos &amp; Fhm)
Farr, John
Legh, Hon. Peter (Petersfield)


Bevins, Rt. Hon. Reginald (Toxteth)
Fell, Anthony
Lilley, F. J. P.


Bidgood, John C.
Finlay, Graeme
Linstead, Sir Hugh


Biggs-Davison, John
Fisher, Nigel
Litchfield, Capt. John


Birch, Rt. Hon. Nigel
Fletcher-Cooke. Charles
Longden, Gilbert


Bishop, F. P.
Fraser, Ian (Plymouth, Sutton)
Loveys, Walter H.


Black, Sir Cyril
Freeth, Denzil
Low, Rt. Hon. Sir Toby


Bossom, Cilve
Gammans, Lady
Lucas-Tooth, Sir Hugh


Bourne-Arton, A.
Gardner, Edward
McAdden, Stephen


Bowen, Roderic (Cardigan)
Gibson-Watt, David
MacArthur, Ian


Box, Donald
Glyn, Dr. Alan (Clapham)
McLaren, Martin


Boyle, Sir Edward
Glyn, Sir Richard (Dorset, N.)
Maclean, Sir Fitzroy (Bute &amp; N. Ayrs.)


Bralne, Bernard
Goodhart, Philip
McLean, Neil (Inverness)


Brewis, John
Goodhew, Victor
Macleod, Rt. Hn. Iain (Enfield, W.)


Bromley-Davenport, Lt.-Col. W. H.
Gower, Raymond
MacLeod, John (Ross &amp; Cromarty)


Brooman- White, R.
Grant-Ferris, Wg Cdr. R. (Nantwich)
McMaster, Stanley R.


Browne, Percy (Torrington)
Green, Alan
Macpherson, Niall (Dumfries)


Bullard, Denys
Gretham Cooke, R.
Maddan, Martin


Burden, F. A.
Grimond, J.
Maginnis, John E.


Butcher, Sir Herbert
Grimston, Sir Robert
Maitland, Cdr. J. W.


Campbell, Gordon (Moray &amp; Nairn)
Grosvenor, Lt.-Col. R. G.
Manningham-Buller, Rt. Hn. Sir R,


Carr, Compton (Barons Court)
Hamilton, Michael (Wellingborough)
Markham, Major Sir Frank


Carr, Robert (Mitchun)
Hare, Rt. Hon. John
Marshall, Douglas


Cary, Sir Robert
Harris, Frederic (Croydon, N.W.)
Marten, Nell


Channon, H. P. G.
Harrison, Brian (Maldon)
Mathew, Robert (Honlton)


Chataway, Christopher
Harrison, Col. J. H. (Eye)
Matthews, Gordon (Meriden)


Chichester-Clark, R.
Harvey, John (Walthamstow, E.)
Mawby, Ray


Clark, Henry (Antrim, N.)
Heald, Rt. Hon. Sir Lionel
Maydon, Lt.-Cmdr. S. L. C.


Clark, William (Nottingham, S.)
Henderson, John (Catheart)
Molson, Rt. Hon. Hugh


Cleaver, Leonard
Hendry, Forbes
Montgomery, Fergus


Cole, Norman
Hicks Beach, Maj. W.
Moore, Sir Thomas


Collard, Richard
Hilley, Joseph
Morgan, William


Cooper, A. E.
Hill, Mrs. Eveline (Wythenshawe)
Morrison, John


Cooper-Key, Sir Neill
Hill, J. E. B. (S. Norfolk)
Mott-Radclyffe, Sir Charles


Cordeaux, Lt.-Col. J. K.
Hirst, Geoffrey
Nabarro, Gerald


Cordle, John
Hobson, John
Neave, Airey


Corfield, F. V.
Holland, Philip
Noble, Michael


Costain, A. P.
Hollingworth, John
Nugent, Sir Richard


Coulson, J. M.
Holt, Arthur
Osborn, John (Hallam)


Courtney, Cdr. Anthony
Hope, Rt. Hon. Lord John
Osborne, Cyril (Louth)


Craddock. Beresford (Spelthome)
Hopkins, Alan
Page, A. J. (Harrow, West)


Crosthwaite-Eyre, Col. O. E.
Hornby, R. P.
Page, Craham


Cunningham, Knox
Howard, Hon. G. R. (St. Ives)
Pannell, Norman (Kirkdale)


Curran, Charles
Howard, John (Southampton, Test)
Partridge, E.


Currie, G. B. H.
Hughes-Young, Michael
Pearson, Frank (Ciltheroe)


Dalkeith, Earl of
Hutchison, Michael Clark
Peel, John


Dance, James
Iremonger, T. L.
Peyton, John


d'Avigdor-Goldsmid, Sir Henry
Irvine, Bryant Godman (Rye)
Pickthorn, Sir Kenneth







Pilkington, Capt. Richard
Shaw, M.
Tiley, Arthur (Bradford, W.)


Pitman, I. J.
Shepherd, William
Turton, Rt. Hon. R. H.


Pitt, Miss Edith
Simon, Sir Jocelyn
Tweedsmuir, Lady


Pott, Percivall
Smith, Dudley (Br'ntf'rd &amp; Chiswick)
van Straubenzee, W. R.


Powell, J. Enoch
Smithers, Peter
Vaughan-Morgan, Sir John


Price, H. A. (Lewisham, w.)
Smyth, Brig. Sir John (Norwood)
Vickers, Miss Joan


Prior, J. M. L.
Spearman, Sir Alexander
Wakefield, Edward (Derbyshire, W.)


Prior-Palmer, Brig. Sir Otho
Speir, Robert
Wall, Patrick


Profumo, Rt. Hon. John
Stevens, Geoffrey
Ward, Dame Irene (Tynemouth)


Proudfoot, Wilfred
Storey, Sir Samuel
Watts, James


Redmayne, Rt. Hon. Martin
Studholme, Sir Henry
Webster, David


Rees, Hugh
Summers, Sir Spencer (Aylesbury)
Wells, John (Maidstone)


Renton, David
Sumner, Donald (Orpington)
Williams, Paul (Sunderland, S.)


Ridley, Hon. Nicholas
Tapsell, Peter
Wilson, Geoffrey (Truro)


Robertson, Sir David
Teeling, William
Wise, A. R.


Robinson, Sir Roland (Blackpool, S.)
Temple, John M.
Wolrige-Gordon, Patrick


Ropner, Col. Sir Leonard
Thomas, Leslie (Canterbury)
Woodnutt, Mark


Sandys, Rt. Hon. Duncan
Thomas, Peter (Conway)
Worsley, Marcus


Scott-Hopkins, James
Thompson, Kenneth (Walton)



Seymour, Leslie
Thornton-Kemsley, Sir Colin
TELLERS FOR THE NOES:




Mr. Whitelaw and Mr. Sharples.

7.0 p.m.

Sir E. Boyle: I beg to move, in page 13, line 20, at the end to insert:
(4) Subject to the following subsection, where a trade is, or falls to be treated as being, carried on for part only of a year of assessment or accounting period by reason of its being, or falling to be treated as being, set up and commenced, or discontinued, or both, in that year or period, the foregoing provisions of this section shall have effect in relation to that trade as regards that part of that year or period as if any reference to the manner of carrying on the trade for or by the end of that year or period were a reference to the manner of carrying it on for or by the end of the said part thereof.
(5) Where in any year of assessment or accounting period there is a change in the persons engaged in carrying on a trade, then, for the purposes of the application of the foregoing provisions of this section in the case of any person who, being engaged in carrying on the trade immediately before the change, continues to be so engaged immediately after it, the trade carried on by that person immediately before the change shall be treated as continuing to be carried on by him not withstanding the change, whether or not it falls to be treated for any other purpose as having been discontinued on the change.
This Amendment adds two new subsections to the Clause. They are needed to put right a flaw in the Clause which fails to provide for cases where a business has not been carried on for the whole of the Income Tax year of assessment. In effect, the proposed subsection (4) says that where a trade is carried on for only part of the tax year the Clause is to apply to that trade in relation to that part of the year as it does in relation to the whole year in the ordinary case.
The proposed subsection (5) provides for the case where, during the year of assessment, there has been a partnership change which falls to be treated for tax purposes as if the trade had been discontinued and a new trade set up. It

enables partners engaged in the business throughout to have their loss claims determined under the Clause by reference to the way in which the business is being carried on by the end of the year of assessment. For instance, if the old partnership conducted its activities in such a way that loss relief would be ruled out by the Clause but the activities of the now partnership satisfied the new criteria laid down in the Clause, the continuing partners would be able to get relief under Section 341 for their share of the losses sustained by the earlier partnership.
I do not think that these are very controversial points, but we should get them right in the Clause.

Mr. Mitchison: We have considered this Amendment and, so far as we can judge, it is fair and in conformity with the spirit of the Clause. We see no objection to it.

Amendment agreed to.

Sir E. Boyle: I beg to move, in page 13, line 21, to leave out subsection (4).
It might be convenient, Sir William, to take with this Amendment that in page 13, line 27.

The Deputy-Chairman (Major Sir William Anstruther-Gray): Yes.

Sir E. Boyle: These Amendments correct a drafting error in that at present subsections (4) and (5) appear in the reverse order. I am well aware from another Amendment which has been tabled that both sides of the Committee have spotted this point.

Mr. Mitchison: We agree with these Amendments, and would only make the comment that we spotted the point first.

Amendment agreed to.

Further Amendment made: In page 13, line 27, at end insert:
(7) The foregoing provisions of this section shall apply to professions and vocations as they apply to trades, and references to a commercial basis shall be construed accordingly. —[Sir E. Boyle.]

Major Hicks Beach: I beg to move, in page 13, line 31, at the end to add:
(7) Nothing in this section shall affect the provisions of section three hundred and forty-one of the. Act of 1952 so far as the same relates to a loss sustained by any person in the occupation of woodlands.
This is an extremely simple Amendment and I think that I can explain it very briefly. The sole purpose of it is to ensure that the present basis of assessment for tax on woodlands remains the same as it is at present.
I should disclose an interest here in that I own an area of woodlands which, I am glad to say, has been replanted. The hon. Member for Gloucester (Mr. Diamond) will know these woodlands well, and I am sure that he will agree with me that his constituents as well as mine have derived much enjoyment from them for a number of years, and I hope that they will continue to do so.
The present system of assessment in respect of woodlands is well known to the Committee and I do not think I need waste time by explaining it. I have taken advice on this Clause which has made me apprehensive as to whether the very complicated working of the Clause will not change the present basis of assessment in respect of woodlands. I think that my right hon. Friend has indicated during our discussions that the Government have no intention of interfering in any way with the present basis of assessment in respect of woodlands. My only object in proposing the Amendment is to make certain that the Government's intention is incorporated in the Bill.
We must not overlook the fact that, whatever the Government say, it is what the courts decide which affects the taxpayer. I hope very much that the Committee will accept the Amendment, the sole object of which is to clarify the position and to ensure that the Clause is interpreted by the courts in the way that the Government intend.

Mr. Amory: I hope that I can satisfy my hon. and gallant Friend the Member

for Cheltenham (Major Hicks Beach) that the position with regard to the occupation of woodlands is entirely unaffected by the Clause. If an occupier of woodlands is assessed under Schedule B he cannot obtain relief for a loss by setting it off against other properties. If he seeks to be assessed under Schedule D he has to satisfy the Revenue that he occupies woodlands on a commercial basis with a view to the realisation of profits. This is precisely the condition that an occupier of woodlands would have to satisfy under the Clause.
If an occupier of woodlands succeeds in establishing his claim to be assessed under Schedule D it is impossible for him to be touched by the Clause. My hon. and gallant Friend might say to me, "If that is so, why did you include forestry in the Budget proposals?" The answer is that at that time I had it in mind to propose to the Committee not these words but the words, "in the expectation of earning a profit".
If those words had been used there would have been some question about woodlands. The fact that we have now adopted the words recommended by the Royal Commission, which are identically the words which qualify the occupier to be assessed under Schedule D, means that there is no occasion that I can envisage in which the occupier of a woodland would be directly or indirectly affected by this Clause.

Mr. F. M. Bennett: One question arises from that. A good deal has been said on an earlier Amendment about "during the lifetime of a person". Would my right hon. Friend's last assurance, which we all welcome, cover the case of woodlands, such as hard woods, which cannot be expected to obtain a profit, even within the lifetime of the present owner? That is a point which has been concerning some of us since the first statement to which my right hon. Friend referred in his Budget speech.

Mr. Amory: I can give my hon. Friend the assurance he requires. It is not dependent in any way on the life of the person. These words have been in force now for a number of years for woodlands and, so far as I know, no difficulty has arisen. It has been and must be recognised that the occupation of woodlands is a long-term business and that if woodland is planted it is impossible to expect


a profit to arise for many years, the number of years, of course, depending on the type of trees planted.
I can assure my hon. Friend that I see no chance of any woodland owner being affected in any way by this Clause. The fact that the profitability of woodlands is very long term has always been recognised and has led to no difficulties of which I know in the administration of the present law.

Mr. Houghton: The Committee certainly does not want to worsen the tax position of woodlands. We thought that it stayed as it was. The hon. and gallant Member for Cheltenham (Major Hicks Beach) apparently wanted to make doubly sure. The Chancellor has now given two assurances to the Committee that everything is just as it was and I suggest that we take his word for it and get on.

Major Hicks Beach: In view of the very satisfactory reply of my right hon. hon. Friend, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Motion made and Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. Stevens: I should like to raise three points, in respect of one of which I received an assurance from my right hon. Friend which, on the whole, satisfies me. That is with regard to the meaning of the words:
or… if the trade formed part of a larger undertaking …
I thought that meant a company which was one of a group of associated companies. My right hon. Friend gave me some assurance on that.
There is a second point which is very important. When is a loss not a loss? Under this Clause certain losses are to be disallowed as set-off for Income Tax and Surtax purposes against other income on the basis that there is no likelihood of a trade making a profit in the future. Supposing that the expectations of the farmer and the inspector in two or three years' time are falsified and that the trade makes a profit? In ordinary circumstances the losses would be available for set-off against the profit thus made in the subsequent year. If a loss has been made and disallowed under

Clause 18, is it still available for carry forward in a later year when a profit has in fact been made? In other words, if the loss is disallowed under Clause 18 and there is a subsequent profit, can the tax status be recovered in a subsequent year?
My last point is again on the words:
… or if the trade formed part of a larger undertaking…
I can best illustrate the point by an example. I have in mind the case of a doctor whose principal source of income comes from patients under the National Health Service and who is assessed for Income Tax under Schedule E. If he is also a consultant in Harley Street any profits would be shown under Schedule D. He might make no profits from his consulting practice and might carry that on purely with a view to keeping up to date with the latest medical improvements. He may do so simply for the general purpose of keeping himself right on top of the line. Will the loss which is constantly made in his Harley Street practice be available for set-off against his income under Schedule E as an employee of the National Health Service? That is one example, and I am sure that there must be others.

7.15 p.m.

Mr. Turton: I express my dislike of the Clause. It has been obvious throughout the discussion that hon. Gentlemen opposite have been anxious not only to attack the hobby farmer but to attack the farming industry in general, quite oblivious of the fact that some of the provisions would hit the whole agricultural community.
I believe that one way to deal with the problem of hobby farming would be to attach the expenditure which ought not to be included in the accounts. That is the real problem that faces the Chancellor. He has taken a different course. I have not the slightest sympathy with anybody who is tax evading and who is carrying on farming with the intention thereby of evading tax, but I have always had the suspicion that this Clause is so framed and directed that it will carry into the dragnet many people whom, I am sure, the majority of the Committee would not want to be so penalised.
Since the earlier debate this afternoon, my apprehensions have grown considerably. We had, first, the Chancellor replying to my hon. Friend the Member for Skipton (Mr. Drayson) who gave the illustration of a widow who, when her husband died, employed a farm bailiff. The Cancellor said that it depended on what salary she paid the bailiff. Then we had the curious reply of the Financial Secretary to the Treasury, who gave the picture of the person involved, whom we call a hobby farmer, coming in and out of these provisions. That does not sound to me as if we were really dealing with the tax evader.
It is clearly admitted by the Government that a number of marginal cases will be caught by Clause 18. I am thinking of the type of case of a man who is suffering from T.B., or something like that, and who cannot go into industry and has to go into farming. These are men who cannot do a full day's work because of their disability. They have to have an employee. They are not strictly speaking, in farming for commercial reasons but they are certainly not there to evade tax. They are there to lead a country life and to enjoy the farm. That is the type of case which is in danger of being caught by these provisions. From what I know of the agricultural community, I do not believe that a commercial basis is the most important thing in that sort of life. Farmers are often thinking of improving the land and improving the line of pedigree.
Before leaving the Clause, I wanted to say how much I still dislike it and how much I hope that the Chancellor, in the later stages, will see whether he cannot so redesign it that it deals merely with the tax evader and keeps out of the net those who, at heart, are genuine farmers although they may not have a very great expectation of profit.

Mr. Crosland: Before speaking about the general principles of the Clause, I should like to answer the paint made by the right hon. Member for Thirsk and Mahon (Mr. Turton) that the attitude—I agree, a more sceptical attitude —which same of us on this side adopt as compared with hon. Members opposite is due to a general hostility on this side of the Committee towards the farming community. This is not a view which the right hon. Gentleman would

find amongst a large section of British farmers, who remember Mr. Tom Williams's tenure of office at the Ministry of Agriculture and what the postwar Labour Government did for farmers.
The right hon. Gentleman, whose expert subject this is, knows very well that during the years after the war, when the Labour Party was in power, it did, to put it mildly, at least as much as his own party has ever done for the farmers. Therefore, the right hon. Gentleman must not be allowed to get away with the suggestion that our attitude to the Clause is dictated by hostility on our part to the farming community.
Having said that, one must draw attention to the fact that this has been one of the most curious debates which I have ever heard on a Clause of the Finance Bill and I do not doubt that this experience will be repeated on several subsequent Clauses. During the first half of the debate on the Amendments, we had an attendance on the benches opposite of a kind which, except for a large-scale foreign affairs debate or a Budget debate, is not seen on more than five or six days a year. During the first two hours of today's discussion, there must have been an attendance of something like 200 hon. Members opposite for discussion of one Clause of the Finance Bill.
One asks oneself what is the reason for that. To anybody who is cynical, many possible explanations might spring to mind. One might assume that a number of hon. Members opposite were themselves hobby farmers. That, however, is not the case, because every hon. Member opposite who has risen to speak has said that he has no sympathy whatever for hobby farmers. We must assume, therefore, that they are not themselves interested personally in hobby farming.
The next obvious explanation is that the Clause deals with a subject which is of such vital importance, affecting so many people and so many thousands of possible claims against the Revenue, and affecting such losses to the Revenue, as to justify so unusual an attendance on a Finance Bill debate. But that is not the explanation either, because every hon. Member who has spoken from the Government side, having said first how much he despises hobby farmers, has


gone on to say that the whole thing is simply being blown up by a sinister conspiracy of the Treasury Front Bench and a few nagging accountants on the Opposition side and that there are probably only one or two, ten or twenty, or who knows how many, of these hobby farmers. The right hon. Member for Thirsk and Malton said that there were probably only one or two of them throughout the country.
If that is the size of the problem, I pay my tribute to hon. and right hon. Members opposite. Their devotion simply to the principle of the Clause in view of the very small, tiny—one or two only—number of people affected by it, shows that something at least is happening to members of the party opposite in their concern for these basic moral principles.
In a sense, the debate has been farcical. When hon. Members opposite say that there is no problem at all and that only one or two people are concerned in it, they know, and we all know, that this is nonsense. We all know that it is nonsense, even those of us on this side with a more urban background, if only from our own experience of talking to people in different parts of the country, or, today, talking to people in the House of Commons while the Clause has been discussed. If personal experience and impression are not enough, although they are quite sufficient, to show that we are dealing with a problem, we have had the figures which have been quoted in the debate. We know the figures of tax-loss cases and the amount lost—respectively, 10,000 and £15 million. I concede at once to the right hon. Member for Thirsk and Malton that not all of these cases, and, possibly, nothing like all of them, are of hobby farming.
There are many other explanations of why losses are made and why loss claims are submitted. Even making the most generous allowance for the other explanations of these losses, however, it seems to me that the evidence is that a substantial proportion of them at least are made in hobby farming. I am the more inclined to believe this when this interpretation fits in with what one knows from talking to people and from one's own knowledge.

Mr. Stevens: The hon. Member has made great play with the suggestion that

the Conservatives support hobby farming. How does he equate that with the fact that it is a Conservative Chancellor of the Exchequer who is sponsoring the Clause?

Mr. Crosland: By the obvious fact that it appears to be introduced by the most unpopular Conservative Chancellor. I am delighted that the hon. Member—I hope that his example will be followed by his hon. Friend the Member for Kidderminster (Mr. Nabarro) and others—is seeking to obtain positive credit for these Clauses, which are so much disliked on his side of the Committee, by pointing to the fact that they are introduced by a Conservative Chancellor. At least, this is a real problem with which we are dealing.
What is the policy even of newspapers which might be expected to support hon. Members opposite in this matter? For example, the Economist, in its City columns, when the Clause was introduced by the Chancellor, conceded that the problem was a real one and that anybody in contact with the countryside would know this. Futhermore, on the evidence of figures given by my hon. Friend the Member for Sowerby (Mr. Houghton), it is a problem which appears to be on the increase. The number of claims which are made annually is on the increase. The amount of the claims is on the increase.
From one's general knowledge of what goes on in farming today, it is impossible to believe that farming is growing less and less prosperous every year so that genuine farming losses are growing. On the contrary, common sense suggests the conclusion that farming is prosperous, that genuine farming losses are not on the increase and that what has been on the increase in recent years are hobby-farming losses.
In the debate on the Clause—I do not doubt that this will recur during discussion of Clauses 19 to 26—a difference of approach has been shown between the two sides of the Committee. It is not simply that one side of the Committee is concerned with the individual and the other side is concerned to protect bureaucracy. We on this side, in our attitude to tax-loss farming and to subsequent Clauses, are much


more concerned than hon. Members opposite with the loss to the remainder of the taxpaying body, with the possible loss in Government expenditure that is involved in tax avoidance on a wide scale and generally in tightening up against tax avoidance. Incidentally, I point out to the right hon. Member for Thirsk and Malton that in the Clause we are discussing, not tax evasion, but tax avoidance. The distinction should be drawn.
For that reason, although I am delighted to hear that the hon. Member for Portsmouth, Langstone (Mr. Stevens) and all his colleagues equally support the Chancellor on the Clause, their delight has been somewhat masked by the tone of some of their speeches on the Bill. Now, however, I have discovered that the hon. Member for Kidderminster and others have been giving wholehearted and overwhelming support to the Chancellor.
Whether or not that is a correct interpretation, I am glad that the Clause has ben introduced and that a number of rather wrecking Amendments have been rejected. I do not know whether the Clause will do the job that it is intended to do. If, however, the conflict of interest is between the tax-loss farmer and the rest of the community, I am on the side of the rest of the community.

7.30 p.m.

Sir John Barlow: I am very glad to be able to fallow the hon. Member for Grimsby (Mr. Crosland), who drew attention to the fact that so many hon. Members on this side of the Committee appear to be interested in farming. If he had been in his place last week, when agriculture was being discussed, he would have found a similar number of Members on this side of the Committee and an almost total absence of back benchers on his side, which shows that we are consistent in our real interest in agriculture.
I do not like the Clause any more than do many of my hon. Friends, but I recognise that there is an abuse of so-called hobby farming, which I dislike intensely. Many losses have been made in farming and will be made for the good of the future of farming and agriculture in general, but I hope that the Chancellor will ensure that the net is not too tightly

drawn and that it scoops in only the people we all want to catch, the so-called hobby farmers who abuse good honest farming, and that he does not draw in too many, as he would then do enormous harm to agriculture as a whole.
This afternoon we have heard much about different kinds of farming losses, but I have not heard any reference to one class to which I direct the Chancellor's attention. Many of us know of industrial, chemical or gas works which destroy the vegetation and ruin the fertility of land in the area around the works concerned. In many cases, tremendous claims for compensation have been made and paid, and after a time many companies have found that it is much more economic to buy the surrounding land and farm it as best they can, knowing that they will make a loss, but knowing that it is cheaper to do that than to pay compensation annually. Those farms have no chance of making a profit in the foreseeable future, not even, as in forestry, at the end of a lifetime. It is not likely that they will ever make a profit, but as the Clause stands they may easily be drawn into the net. They may escape because of the provision in the last line on page 12 and the first line on page 13. I had down an Amendment to try to make this point clearer, but, unfortunately, it was not called. I urged the Chancellor to consider this matter, because many companies may be severely handicaped and some of the nationalised industries as well might be included.

Mr. Nabarro: They are not in it. Will my hon. Friend allow me to intervene?

Sir J. Barlow: No. My hon. Friend can have his share later. This is an important matter and I hope that the Chancellor will look into it and see that those companies which are farming with substantial losses, but perfectly legitimately, are not penalised.

Mr. Prior: The hon. Member for Grimsby (Mr. Crosland) made a clever speech criticising the actions of hon. Members on this side of the Committee. I agree with him that the Labour Party looked after farmers very well when it was in power, but conditions then were extremely diffierent from what they are now. I am glad the hon. Member paid tribute to the present prosperity of farming.
The Clause will be welcomed by the farming community. Some hobby farmers are an undesirable element in agriculture. They tend to sell their crops and other products at low prices merely in order to get rid of them and they are not particularly concerned with how much they make. That depresses the whole farming market and the Clause will help to get rid of that situation.
As drawn, the Clause will not affect improvements to buildings, reclamation of land and improvements to cottages, matters of importance to agriculture and the community in the countryside. Some improvements have been brought about in agriculture as a result of capital coming in from industry, but hobby farmers who make losses are generally making losses through bad husbandry. The majority of losses are made by bad marketing and bad husbandry and not by undertaking extensive and extravagant improvements to farm buildings, nor by buying expensive equipment. They generally result from sheer bad farming, and in that respect the effect of the Clause will be wholly beneficial, in that it will stop these people and ensure that the level of prices is somewhat raised so that we can cut down deficiency payments.
For those reasons I welcome the Clause. Naturally, we are all worried that the Inland Revenue may be able to exert too much influence on farmers, particularly on farmers setting off losses under Section 341, but my experience of the Inland Revenue is that it is extremely fair about farming losses. It could be somewhat stricter than it is with some of its existing powers over matters like allowances for motor cars and so on. I would prefer the Revenue to use those powers more widely than to take the new powers in the Clause.
However, I welcome the Clause generally and I hope that it will result in the farming community continuing to gain the enormous benefit which it has derived in the last few years from capital coming into agriculture from other sources while getting rid of the small minority of undesirable people who have done the farming community as a whole great harm.

Mr. Diamond: I begin by suggesting that the Chancellor should redraft the

Bill so as to take subsection (6) out of the Clause and make it a separate Clause. That subsection has practically nothing to do with the rest of the Clause. It is confusing to those who want to run as they read and, as the right hon. Gentleman will be aware, no one has spoken on this provision. It is a perfectly sensible provision and the fact that no one has referred to it shows that very few people realise that it is there, or that it has nothing to do with hobby farmers or the rest of the Clause.
If the Chancellor is kind enough to consider that, he might, at the same time, consider leaving out the horrible expression "off of". I do not know why we are adopting this habit of "setting off of" losses against profits when, so far as I am aware, it is perfectly intelligible and good English to set profits against losses. All of us want the drafting to be as intelligible as is consistent with the difficult circumstances with which we are dealing, and I hope that that plea for simple English will not fall on unsympathetic ears.
Now that we have come to consider the Clause as a whole, I cannot be as affable as I have been hitherto. I am wholly dissatisfied with the strength of the Clause. Having regard to the bad system and to the framework within which it has to work, the Clause is as good as it can be, but we have a system in which capital gains are not taxed and in which we have to deal with the problem of farmers who make a current revenue loss which is liable for tax in order to make capital gains on resale which are completely Income Tax and Surtax free.
If one is working in that unsatisfactory framework, one has to have a Clause of this kind, but this Clause is totally inadequate. It does not do the job which the Front Bench opposite has said that it does. I have already referred to the fact that the Attorney-General said that this would stop hobby farming, the promotion of a private amenity at the cost of the taxpayer. It does not do that. My hon. Friend the Member for Grimsby (Mr. Crosland) was quite right, but extremely cautious and conservative as usual, in his estimates of the number of hobby farmers, but of all the losses made and claimed, a part only will be claimed by hobby farmers, while for all the profits


which are understated—by the same definition of losses—a large proportion again will be hobby farmers.
Hobby farming shows up only when one gets to the point of loss. It does not mean that much hobby farming does not go on with the effect of making reduced profits. There is really no difference between making a loss, from the point of view of losing revenue, and not making a profit. In both these cases revenue is lost to the Chancellor.
This Clause does not touch that point at all. The right hon. Gentleman the Member for Thirsk and Malton (Mr. Turton) was on a very good point indeed when he said that the Chancellor should have got down to the problem of disallowable expenditure. It has not been touched by the Clause. He should have dealt with it in other ways—by introducing Schedule B as a minimum, for instance. He could have said, as we on these benches have said before, that all farmers should be taxed on a notional income. If they did not want that, and preferred Schedule D, then they could have that, but there should be a minimum of notional income. There is a precedent in Schedule A. It is not based on the rent one pays for a house. If I provided the hon. Member for Kidderminster (Mr. Nabarro) with a free house at the North Pole in the hope that he would live in it and enjoy doing so, assuming that the North Pole—

The Temporary Chairman (Mr. F. Blackburn): The North Pole is a long way from this Clause.

Mr. Diamond: I was making it clear that if one gives property to a person under Schedule A so that the person lived in that property rent-free, his Schedule A tax is not reduced to the amount of rent but is based on what the property ought to have fetched. Why could we not deal with hobby farming on the basis of assessing profits which should have been made?

The Temporary Chairman: It might perhaps have been dealt with in that way, but the Chancellor did not do so, and it is only what is contained in this Clause that we are discussing.

Mr. Diamond: I am grateful to you, Mr. Blackburn, for underlining my argument. It is my point that the Chancellor

has not done that, and I regret it extremely. There are further weaknesses in the Clause. I was not suggesting that you were intervening on any side of the Committee, but was only expressing my gratitude to you as a courtesy due to the Chair.
There is the question of determining the nature of the farm, whether it is a hobby farm or a genuine farm. The farmer is allowed twelve months in which to hobby farm, provided that on the last day he turns it into a genuine farming operation. It is only on the very last day that this has to happen. He may hobby farm for eleven months, three weeks and six days—

Sir Richard Glyn: What sort of farm can be farmed 364 days of the year as a hobby farm and on the 365th day not as a hobby farm?

7.45 p.m.

Mr. Diamond: If that is the difficulty in the hon. Gentleman's mind, why does not the Chancellor alter this and say that this should be determined by the operation at the beginning of the year? One has to fix a date. Why pick it at the end of the year? Of course, I agree with these difficulties, but why not, by the same argument, fix the date at the beginning of the year for this to be determined under this Clause? Subsection (3) states:
where during a year of assessment or accounting period there is a change in the manner in which a trade is being carried on, it shall be treated for the purposes of this section as having been carried on throughout the year or period, as the case may be, in the way in which it was being carried on by the end of the year or period.
Why could we not have substituted for "end of the year" the words "beginning of the year"?

Sir R. Glyn: The hon. Gentleman has not quite grasped my point or what I believe to be the weakness of his point. The hon. Gentleman was objecting that this day should be at the end of the year because, he suggested, it was possible to farm far 364 days as a hobby farmer and then, in some curious way, switch over to farming not as a hobby farmer. The hon. Member suggested that he would be happier if my right hon. Friend the Chancellor of the Exchequer had elected to choose the first part of the year for this decision. If


it were possible—which only exists in the realm of pantomime—with good fairies turning pumpkins into coaches

Mr. Nabarro: Cloud-cuckooland.

Sir R. Glyn: —to farm 364 days and then switch over to becoming a real farmer, it is just as possible to farm as a real farmer for one day and then switch to being a hobby farmer for the succeeding 364 days. Farms do not work like that, however.

Mr. Diamond: This Clause envisages that, at some point of time, a hobby farmer may become a genuine farmer. Of course this does not happen on a particular day, but notionally it has to be deemed to happen on some day or other. One has to decide either at the end of the year, half-way through, or at the beginning. It would be reasonable to decide half-way through; that would be fair to both points of view. But the Chancellor has not been tough with the hobby farmers, as in everything else in this Clause as far as details are concerned.
This situation first came to the notice of the Revenue in 1954. I suspect that it was rapidly growing. It was not existing in 1951 to the same extent. If I am wrong in that, perhaps the Chancellor will tell me. Certainly the Royal Commission has indicated that the figures it produced for 1954 were the results of a rapid increase in the numbers of losses made in farming. I would be interested to know why we have not dealt with this problem hitherto, why it had to be left until 1960–61, until a report was brought forward by the Auditor-General, and until there was such a row outside the House that the Government proceeded to do their duty in terms of fiscal legislation.
Genuine farmers dislike hobby farming considerably. I understand from what was said by the hon. Member for Lowestoft (Mr. Prior) that it is his point of view that hobby farming is damaging to the interests of genuine farmers. My concern is that it is much more damaging to standards of citizenship. Because this Clause seeks to put an end to an accepted and well-known tax-dodging device, every possible difficulty

is being put in the way of improving the Bill from the other side of the Committee. If this attitude of laughing support of the tax dodger continues, it is not surprising that the rest of the community takes its cue from this place and proceeds to regard it as right and proper to avoid tax as far as it legally can. It is not surprising, especially when one had a junior Minister who went so far as to say—I am not quoting—that any man who got the better of an inspector of taxes was a friend of his.
It is because of this continual encouragement of the natural wishes of so many thousands of people to avoid tax that there is a general pattern under which tax avoidance becomes acceptable to the community and that year after year we have to deal with this problem of tax avoidance.

Sir Charles Mott-Radclyffe: We have had quite a long discussion on the Clause, but I want to say one or two things to the hon. Member for Gloucester (Mr. Diamond) and his hon. Friends. They attempt to allege that we on this side of the Committee are here to protect the tax-dodger and the "spiv". I resent that very much and so do my hon. Friends. It is quite untrue, and the hon. Member for Gloucester knows it. The reason why the benches on this side of the Committee are more fully occupied than are the benches opposite is that we understood very well that, unless the Clause was very closely scrutinised, it could have an extremely detrimental effect on the agricultural industry generally, in the sense that we all support the Chancellor in his attempts to catch the "spiv", but, unlike hon. Members opposite, we are anxious not to catch in the same net, by accident, a large number of perfectly genuine farmers who are making perfectly genuine losses for perfectly genuine reasons.
I would advise the hon. Member for Gloucester not to continue on this high moralising note about "spivs", because if ever there was a period in British Parliamentary life when the "spiv" had the laugh on the holder of National Savings certificates it was the period when the then Mr. Dalton was Chancellor of the Exchequer. I shall not follow the hon. Member for Gloucester in his tortuous opinion on the difference between profit and loss, and why he thinks that the


farmer should be taxed on a profit which he ought to have made. I do not suppose that the hon. Member would very much like to be judged in the House of Commons or by his constituents on speeches which he ought to have made.
If the party opposite had its way, it seems to me that no capital from outside would ever be encouraged to come in to refresh the agricultural industry, and no one would ever conduct any experiment except the Minister of Agriculture. That would he thoroughly unhealthy. Industrialists and businessmen of one or other or no political party have for centuries, towards the end of their lives, before retirement or just after, gone back to the land and bought a farm or farms. Some of us may envy—and I do envy—the scale on which some of them do things, but
cannot stand in this Committee and say that the activities of every industrialist in agriculture are detrimental to the agricultural industry. They are not. I am quite certain that my right hon. Friend the Chancellor agrees with me.
This expression "hobby farmer" seems to have been bandied about a great deal without anyone opposite trying to define it.

Mr. Crosland: It was not invented by us.

Mr. Nabarro: It was.

Sir C. Mott-Radclyffe: As far as I know, there is no crime in being a hobby farmer. The crime which we all condemn is that of being a "spiv". There are farmers and woodland owners among hon. Members. We are hobby farmers in the sense that we cannot manage farms or woodlands day by day while sitting in the House of Commons, but that does not mean that we are "spivs". What we are trying to do is to stop forms of tax evasion without discouraging in any way perfectly legitimate activities in agriculture.
I confess that I was a little apprehensive about certain implications in the Clause when we started to debate it today. I am less apprehensive now in view of the various assurances given by the Chancellor. I should think that the party opposite has lost a great deal of support, if it ever had any in the country, by clearly failing to distinguish between the wood and the trees.
I want to put two points to my right hon. Friend. I am not worried about the application of the Clause, provided that it is interpreted wisely and sensibly, as I think it will be, according to the various assurances that he has given us, but I ask him to beware of the Clause in relation to the farmer who is farming marginal land under various marginal production schemes. I refer particularly to the hill farmer. As my right hon. Friend will know from his experience in the Ministry of Agriculture, he has only to alter slightly the structure of various grants to turn many hill farms overnight into hobby farms in the sense that they would no longer be capable, with any reasonable expectation, of making a profit.
Nor do I think that my right hon. Friend would wish any farmer who has consistently farmed at a slight loss to turn that loss into a slight profit under this Clause by rather ruthless methods. It can be done easily by being ruthless with old farmhands who, on the grounds perhaps of sheer efficiency, should go, but nobody wants to get rid of them. They stay on in their cottages at low rents, they work hard, and all the genuine farmers are quite happy still to employ them. We must not interpret the difference between profit and loss on so narrow a front that a farmer must farm ruthlessly, with complete disregard for any human factor. It would be quite wrong.
I should like to draw my right hon. Friend's attention to the following words in subsection (1):
Provided that this subsection shall not apply to a loss made, or an allowance in respect of expenditure incurred, in the exercise of functions conferred by or under any enactment…
I do not know what is meant by
…conferred by or under any enactment…
Does it mean carrying out a statutory obligation?
Woodland owners are under a statutory obligation under the Forestry Act to replant when they fell, and landowners are under statutory obligation to carry out the rules of estate management under various agricultural Acts since 1948, but to carry out a statutory obligation is not to my mind the normal interpretation of "functions conferred". I am not certain whether I am on a right


or a wrong point, or whether I have misunderstood the subsection. I hope that my right hon. Friend will be kind enough to enlighten me when he replies to the debate.
I am satisfied with the assurances given by my right hon. Friend on the Clause. I am quite certain that the Commisisoners of Inland Revenue will carry out the interpretation of the Clause in the sense that the Chancellor means, and we all know that agriculture has never had a better friend than was my right hon. Friend when he was Minister of Agriculture.

8.0 p.m.

Mr. Charles Fletcher-Cooke: I am not a farmer and therefore it is with particular pleasure that I hear farmers all around me supporting the Clause, as I do. If we take some time over this and other tax-avoidance Clauses, as we may have to do, it is not because we on this side of the Committee do no support the principle of stopping tax avoidance, as the hon. Member for Grimsby (Mr. Crosland) implied. It is because we know that with this difficult problem unless one goes carefully there is a danger of ruining the fabric of the law and of doing more damage by attempting to solve the problem than would be done by its continued existence. That is why the benches on this side of the Committee have been thronged today and are likely to be thronged for the next few days on the Committee stage.
I should like to ask my right hon. Friend the Chancellor of the Exchequer about a single case which I think would be caught by the Clause and which should not be caught. Suppose that a farm be it a hobby farm or not—has been carried on at a loss for some time, and it is clear to the farmer, and indeed to the inspector, that there is very little prospect of it making a profit in the future. It must be sold. The decision to sell it is taken, but when a thing is doing badly it is unwise always to sell immediately. It is decided to sell after a period, perhaps after having incurred a certain amount of expense in putting the farm into a more saleable condition
as a saleable unit. The expenditure incurred in the course of that perfectly proper commercial operation would not have been incurred with a view to the

realisation of a profit in the ordinary sense of an annual profit because the purpose of doing so would be to make it a more saleable asset.
Would such expenditure be caught by the Clause as it stands, as I think it would, and if so, should it be so caught? If not, and I think it should not, would my right hon. Friend consider meeting that point before the next stage of the Bill?

Mr. Nabarro: I accept the need for the Clause, and I believe that my right hon. Friend the Chancellor of the Exchequer has made an honest, sincere, and liberal attempt to deal with what is undoubtedly a grave abuse in a limited number of cases.
The abuse to which I refer is perhaps best expressed by the attempt on the part of a small minority of persons engaged in farming to make losses year after year without any attempt ultimately to achieve profitability on their holdings. It is for that reason that I support the general need for the Clause, but I think that only a very few cases will be caught by it. I think that it will cause a lot of persons who have been guilty of this abuse in the past to mend their ways and break even, or even earn a small profit, and if my right hon. Friend succeeds thus far I shall consider that to be a step in the right direction.
The reason I do not think that he will achieve any very salutary result from the Clause is because of the words
"on a commercial basis". My understanding of "on a commercial basis" is to earn a profit, but there are so many circumstances of such a diverse character in farming—and in any other sort of business or undertaking of every description—that cause a person not to earn a profit, although he is still conducting the undertaking on a commercial basis, that I think there will be very few cases indeed caught by the Clause.
This is, as I say, an honest, sincere, and liberal attempt to stop an abuse which existed in this small minority of cases, and, as I said in the opening sentence of the speech that I made on the Budget on 5th April, I support the Chancellor in what he is doing, but I have two apprehensions, and I ask my right hon. Friend please to look at them between the Committee and Report stages of the Bill.
I am not happy about the provision in subsection (1) to which my hon. Friend the Member for Windsor (Sir C. Mott-Radclyffe) referred, the provision which returns us to the controversy I had with the Chancellor earlier on the subject of the nationalised industries. The reason I am not happy about my right hon. Friend specifically excluding nationalised industries—and I repeat excluding them —is for no party political or partisan reason. It is simply that members of the Conservative Party, at the last General Election and the General Election before that, said that it was our intention to conduct these industries on a strictly commercial basis. The Clause is concerned not only with farming, but with every kind of business everywhere and there should be no discrimination in the Statute between a nationalised industry, on the one hand, and private industries or businesses, on the other hand.
We believe that they ought to be conducted or a commercial basis, and if any evidence is required of that, the nationalised industries are assessed to Income Tax and to Profits Tax. If they are assessed to Income Tax and Profits Tax, surely it is manifest that they are commercial undertakings, and, as such, should be adjudged within the ambit of the Clause. I hope that between now and the Report stage my right hon. Friend will consider reframing that provision.
I realise that there has to be a provision of that kind in the Bill to exclude, for example, a home farm attached to a mental institution, of which there are many examples throughout the country. The home farm is generally farmed at a loss. It sells part of its produce, but the remainder of the produce goes into the asylum. We understand that, and the provision as it is printed in the Bill would cover a case of that kind, but I think that there should be an additional provision resting on the simple proposition that if we assess the nationalised industries to Income Tax and Profits Tax they should be treated on exactly the same footing in the Clause as a private industrial undertaking.
The second apprehension that I have, and I warned you earlier, Mr. Blackburn, that as it was strictly within the context of the Question, "That the Clause stand part of the Bill" I would raise it again, is this general matter of costs.

The Temporary Chairman: Order. I do not think that it is within the general context of this particular Clause. I do not think that the question of costs arises here. I allowed certain references to be made to it when I was in the Chair on a previous occasion, but I had hoped that that would be the end of it.

Mr. Nabarro: I would not challenge your Ruling in this matter, Mr. Blackburn, but I am sure that you have taken the point in the Clause that, as a result of the new arrangements, there is likely to be a substantial increase in the number of cases taken before the Commissioners.

The Temporary Chairman: It does not follow that they will be, nor does the Clause say who shall be responsible for costs. Therefore, I do not think that it can possibly be discussed on this Clause.

Mr. Nabarro: Then I shall confine myself to pointing out that, as a result of my right hon. Friend's proposal, there is likely to be an increase in the number of cases taken before the Commissioners. In such cases there must be scrupulous equality as between the taxpayer, on the one hand, and the tax gatherer, on the other. No reference to costs there, Mr. Blackburn. There must be scrupulous equality.
My hon. and learned Friend the Solicitor-General pointed out that there was no special rule contained in the Clause on the point that I am making, and I shall have to seek other means later to raise it again, but if we believe that the Inland Revenue should have greater powers for proceeding against the taxpayer, I believe that the honest, scrupulous and conscientious taxpayer must be afforded full and proper protection against the blandishments of the Revenue, and there are often blandishments of a very severe, if not a charming, kind, of which many hon. Members of this Committee have general, if not personal experience. I appeal to my right hon. Friend to consider that point, and I have not mentioned costs from beginning to end.

Mr. Anthony Kershaw: I thought that I would be the last hon. Member to detain the Committee on the Clause. I know that the Financial Secretary would like to see the last of it, but


I make no apology for pursuing it further, because it is an extremely important Clause for the two reasons which have been advanced by other hon. Members. First, the Clause should not be drawn too widely so as to catch an honest man as a matter of fiscal propriety. Secondly, the Clause, dealing as it does more with the farming community than with other communities, should not impose a special handicap on that community with which so many hon. Members on this side of the Committee have an interest.
The hon. Member for Grimsby (Mr. Crosland) said that he did not understand anything about farming, and from the speech of the hon. Member for Gloucester (Mr. Diamond) it was quite clear that, although he understands a lot about figures—and I have a healthy respect for him in that regard—he does not understand anything about farming. I wonder if he has thought out his proposition that profits should also be set against losses. I see that you are rising Mr. Blackburn; I am merely taking up the hon. Member's point, so I must be in order.

The Temporary Chairman: If the hon. Member casts his mind back, he will remember that I stopped the hon. Member for Gloucester (Mr. Diamond) when he began discussing matters not referred to in the Clause.

Mr. Kershaw: The hon. Member was allowed a certain time to develop that part of his argument. Nevertheless, I will not go further, except to say that if the hon. Member for Gloucester pursues the matter in his mind he will find that the inability to make profits was one reason why independent farmers have recently been done out of business in Eastern Germany.
I still regard the Clause with a certain amount of apprehension, although I was relieved to some extent not only by the assurances which my right hon. Friend the Chancellor has been able to give—but has been unwilling to write into the Clause in the form of an Amendment—but also by the speech of my hon. Friend the Member for Lowestoft (Mr. Prior), who has great knowledge of these matters as a working farmer. He said that he does not feel that the Clause will

impinge upon him at all, and that it might even have good effects.
But the debate has generally been dealing with extraordinary cases. We have had references to the breeder of racehorses, who does not expect to make a profit between 1901 and 1960; we have had references to the research farmer—largely my right hon. Friend the Minister of Agriculture, who makes astronomical losses on 15 acres of ground—and we have heard of the man who is bringing moors and Scottish forests back into cultivation. Mention has even been made, by my hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow) of the gas 'works farmer. I did not know that he existed.
It is easy for my right hon. Friend to give assurances that that type of special operator, whose profits come along many years ahead, will receive special treatment. It is not with those persons that I am concerned. I am not entirely satisfied that the Clause, as drawn, will not catch ordinary people who live on the land and try to make, if not a lavish living at least a background to their life —for whom farming is a way of carrying on their life. They may be doing it for health reasons, or because of the large number of children they have. My hon. Friend the Member for Truro (Mr. G. Wilson) may agree that if one has many children it is a very good reason to take up farming. It is necessary to have a large, rambling house, especially when there is nobody to look after the children, or perhaps there is only one's wife—and hon. Members know that wives sometimes have to be here.
I am concerned with those people, and also with those who are engaged in horticulture. Severe changes in prices in the past six years have made it extremely difficult for the genuine operator in the horticultural market consistently to make a profit. Let us suppose that, despite all his endeavours, a horticulturist, or a man running a small farm, consistently makes a small loss—or even a large loss—for ten years. Is he to be caught by the Clause? He may hope to sell a bull for £1,000, which would make all the difference to him in one year. The deal may never come off, and he may not be able to sell the bull. He may make a loss of £500 every year for ten years. Is not the patience of the tax collector to be exhausted in the end? Will he not tell


the farmer, "Mr. Jones, you come to me every year telling me that you will make a profit next year, but you never do. Do you not think that you ought to pay up?" I should like an assurance from my right hon. Friend, if he is able to give it, that that type of man will not be caught by the Clause.

8.15 p.m.

Sir R. Glyn: The point that I had intended to make has just been made by my hon. Friend the Member for Stroud (Mr. Kershaw). We have heard practically nothing about horticulture in this debate, although horticulturists will be affected by the Clause. They are in a special position, and I should like to hear my right hon. Friend refer to them. They are tremendously exposed to changes in the market, perhaps due to events overseas over which they have no control.
That point also applies to small farmers, especially those engaged in pig and egg production. The moment there is some change in the market it becomes clear alit some small man who in the past could make a profit is now in a position which makes it increasingly impossible for him to do so. If a small farmer—perhaps a retired man—with other sources of income is to be told by the Commissioners, "This farm, which was a commercial unit a year ago, is not now regarded as such, and you cannot set off any losses you are likely to incur," it will be very unfortunate.
I also have in mind the case of the farm out of which too much profit has been taken—the farm that has been worked to death, where the farmer who previously had it has "farmed to go" and has left the land utterly impoverished and of very poor fertility. In such a case it is necessary for the succeeding farmer to farm the land for years in such a way as to bring it back to fertility. He will have to put a good deal of money into it, and many years will go by before he can hope to see any profit back out of it. I hope that people who take over farms in such a condition and put money into them to restore the fertility of the ground will not be caught by the Clause.
I share the anxiety which has been expressed that the Clause will cause a good number of people to be brought before the Commissioners. That can cause a good deal of anxiety, inconvenience and expense. When the Clause

finally becomes pant of the Act I hope that it will not have 'the effect of creating difficulty and trouble for many honest, straightforward farmers, who could not possibly be called hobby farmers, and of making them go before the Commissioners perhaps over and over again to try to persuade them that they should be allowed to set off their losses against other income.

Mr. Mitchison: The Clause has had a somewhat lukewarm reception from hon. Members opposite. It is not a penal Clause; the rules about onus of proof and 'the like in criminal proceedings are not applicable. It is not even penal in the sense that it puts any penalties on anybody, but it is intended to stop people exercising the statutory right to set off losses when it is not thought right that they should be able to do so. It does not penalise anyone, but it deprives people, in certain circumstances, of the statutory right which they would otherwise have.
I agree with what my hon. Friend the Member for Grimsby (Mr. Crosland) said. The practice of hobby farming, as referred to by the Royal Commission, was obviously well known and widely prevalent when it reported six or seven years ago. The figures, by comparison with those given for 1958, are rather interesting. The number of payments in respect of these losses has not altered greatly. It was between 9,200 and 9,300 in the year ending September, 1954, and it is now about 10,000. But the losses, which in 1954 were about £10 million, are now about £15 million. Whether or not the same people are concerned, the number incurring losses in this way has changed very little, but the extent of the lasses has risen considerably.
As my hon. Friend said, one may ask why they go on losing money in this way. In many cases—and I have mentioned that I have farmed at a loss—there are reasons for it. None the less, the fact that about the same number of people are involved but that there is a greatly increased amount of loss seems to indicate that the abuse has not diminished but increased. Of course, it is not an abuse confined to hobby farming. I would not say that market gardeners in some cases were by any means exempt from criticism in this respect, and I can think of other cases.
as did the Royal Commission, where trouble of this kind, on the same legislation and broadly to a similar effect, has happened.
I have not the least doubt that the Chancellor has been justified in saying that the time has arrived to do something about it. My only comment is that, on the figures given at the time of the Royal Commission, something ought to have been done earlier. The party opposite has been in power all this time. If it is as concerned, as it claims to be, with the true interests of agriculture, I should have thought that that would have been an inducement to it to take earlier action. When all is said and done, while I recognise that there are people who do good at a loss, this practice, by and large, cannot be conducive to farms being run for the best national purpose by the people best qualified to run them.
When I talk of qualifications, I do not merely mean technical qualifications. I mean the qualification of being a dirty boots farmer and doing the job yourself. I have already said that I am to that extent—as I dare say are some hon. Members opposite—a clean boots farmer, but I think it is a pity to have clean boots farmers if we can have dirty boots farmers, that is to say, people who, as far as possible and in the best interests of agriculture, spend more than a casual time in farming.
I should have thought it rather unnecessary for hon. Members opposite at this time to accuse the party on this side of the Committee of neglecting the interests of agriculture. The very simple answer to that is. "Go and see how farmers did under the Labour Government, and how they did, either since then or, even more forcibly, how they did in the period after the First World War when they had a rotten time under a succession of non-Labour Governments." I am not going into that. It seems to me that that sort of remark simply indicates that one has nothing better to say. [Laughter.] I entirely agree. They are very unpopular at present, but they must suffer that from time to time. They will recover, and I hope that we may have a Government that have got something behind them in

agricultural matters, and not merely farmers' grouses to deal with.
Let me turn from that to make one or two comments about the Clause. We are dealing with a social evil and there is no point in trying to make out that it does not exist, that it is of negligible proportions or that only a few people are concerned. I entirely agree with some hon. Members opposite who said, as did the Royal Commission, that this provision will not necessarily have a sweeping effect. I do not take the view that it will result in whole numbers of people being involved in the machinery of this Clause. It will have an effect, no doubt, and it is what the Royal Commission recommended. It seems to me to be the right thing on which to start, but if we are going to start on it, I should have thought that we might have been at least more logical about it.
What is the position at present? We get people who are not to be allowed any longer to set off their agricultural losses against their other income. We then allow them to set off instalments of capital depreciation which fall to be treated as income. We allow them to set off allowance on agricultural buildings and a number of other things which are still concerned with the more substantial point that the trade which they purport to he carrying on is not really an agricultural trade in the true sense—if hon. Members wish, a commercial agricultural trade. I wish the Government had gone further in that respect. The Amendments that have been brought forward from the benches opposite did not seem to me to amount to very much, even if they had been accepted. In one or two cases, they added little or nothing to the purport of the Bill.
I think that in a matter of this sort we must try the ground, and that we ought not to regard the Clause itself as necessarily the last word. As a first step, we on this side of the Committee approve of it generally, though we would have extended it in one or two respects which we have indicated by Amendments. We approve of it because we think it will, at any rate, start to do the job. It may do the whole job. I have very little fear indeed that it will catch any people who ought not to be caught. I do not think that this form of words, which was


regarded by the Royal Commission as a very mild effort, is going to do any damage that way. What may happen, though I hope it will not, is that it will not catch enough and will have to be reconsidered by subsequent Chancellors. For the time being, there it is, and, broadly speaking and subject to the criticisms that I have made, we on this side of the Committee welcome it.

Mr. Amory: The hon. and learned Member for Kettering (Mr. Mitchison) has told us that he is a farmer. Time alone will show whether he is a hobby farmer or not. He has also told us that he much prefers a farmer with dirty boots to a farmer with clean boots. I should like to say to him that this is the most important time of the year on a farm, and that if he feels that his duty to his party requires him honourably to dirty his boots there. I shall have no objection to him leaving immediately and visiting his farm, and on every single remaining clay of the Finance Bill discussions.

Mr. Mitchison: I hope that the right hon. Gentleman is not going to put into practice the advice which he has given me.

Mr. Amory: I have no farm.
We have been talking a little bit about hobby farming as if it were a crime to be a hobby farmer. We must get this in perspective and realise that if somebody chooses to farm his land as a hobby it is legitimate for him to do so. We may or may not think it a good plan, but it is perfectly legitimate. The question with which we are concerned is whether, if he does so, he should be able to set off his losses against other income.
I should like to deal with the various points made by various hon. Members in their speeches. My hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) asked whether if a farmer were regarded as a hobby farmer he would he able to carry forward his losses and set them off against a profit, if and when he made a profit. The answer is, "Yes, he would". He asked about a doctor who might be working under the National Health scheme, who might be assessed under Schedule E and who might have premises in Harley Street for prestige reasons. My hon. Friend asked whether that would qualify. Well, it all depends,

but I should not have thought it difficult for such a doctor to show that he was occupying his premises in Harley Street with the aim of the realisation of profit. Without going into the circumstances it would be rather difficult to be sure that there would not be some extreme case which might be caught.
My right hon. Friend the Member for Thirsk and Malton (Mr. Turton) was still unhappy about the position of farmers farming perfectly properly and engaged in the difficult long-term task of improving the land. On one or two occasions I have said—I will repeat it again—that that could be perfectly easily reconciled with the eventual realisation of profit. It is certainly not the aim that the provisions in this Clause shall make life more difficult for someone who is farming legitimately and doing his best to improve his land and make his farm as economic and productive as possible. I do not think there is any danger in that regard.
8.30 p.m.
Agriculture is a very competitive industry and I do not think that genuine farmers have much time for fancy farming or super-luxury farming with no regard to commercial operations. They consider that so far as there are any lessons to be learned from such types of farming they are not the right lessons. Secondly, they see that such enterprises result in putting up the price of breeding stock and land to dangerously artificial levels.
I wish to make clear that a series of losses over a series of years would not in itself make a farm subject to the provisions of this Clause. It all depends on the circumstances, the background of the industry, the type of farming and the project itself. My hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow) referred to certain companies and mentioned that in their perfectly legitimate activities it would be almost impossible for them to realise a profit. He asked whether they would be caught.
My first reaction is that I think they would not be caught, because they would be saved by the provision that it would be the undertaking as a whole which would be the criterion. If the aim of the undertaking as a whole was the realisation of profit they would probably be all right. But it is a rather specialised


point and I should like to consider it. I am grateful to my hon. Friend for raising it. My hon. Friend the Member for Lowestoft (Mr. Prior) made the point which I have just made, that genuine work in improving a farm would be perfectly legitimate and could be reconciled with the aim of the realisation of profit.
The hon. Member for Gloucester (Mr. Diamond) asked whether it would not have been better had subsection (6) been a substantive Clause. I am not sure. I will consider it, but I should have thought that it was all right as the Clause is drafted. The hon. Gentleman asked why we used the words "off of". The answer is that we followed the Statute which contains the words "off of". In this case I think we were right to follow the Statute.
The hon. Gentleman asked whether hobby farming was on the increase. The hon. and learned Member for Kettering has given figures about that. The short answer is that there is no evidence that the number of hobby farmers has grown over recent years, though the aggregate losses are probably greater, possibly owing to the more competitive state of the industry today.
In what I thought a very good speech, my hon. Friend the Member for Windsor (Sir C. Mott-Radclyffe) said that he resented the allegations of certain hon. Members opposite that my hon. Friends were out to support the "spivs" and those deliberately abusing their position as farmers. I have heard nothing from my hon. Friends to leave me with that impression. Every point which has been raised by hon. Members on this side of the Committee was perfectly legitimate. I agree with my hon. Friend the Member for Windsor that in such a Clause as this we must be careful that we do not catch genuine cases as well as those we are out to catch. I am grateful to my hon. Friends for making the points which they have made and which, as I say, I consider are all legitimate ones.
I agree with my hon. Friend the Member for Windsor that many industrialists who participate in farming do so to the benefit of agriculture. He asked me to give an assurance that this Clause would be sensibly and fairly interpreted.

I believe that the inspectors of Inland Revenue treat farming operations with understanding and fairly and sensibly. One or two tributes have been paid to them this afternoon.
The point my hon. Friend made about marginal land is a perfectly good one. I do not believe that genuine farming operations on that difficult land are in danger. He asked a question about the statutory functions referred to in the proviso to subsection (1) and whether the kind of obligations which woodland occupiers enter into under the woodlands assistance schemes would be involved here. My answer would be "No," it is not that sort of statutory obligation we have in mind here, but the sort of statutory undertaking such as a marketing board.
My hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke) raised an interesting point about a farmer who might be proposing to sell his farm but, for one reason or another, finds that the farm is not ripe for sale. He might wish to carry out certain improvements on it before selling. If those improvements were—as I presume they would be—to improve the sale as a farm and such improvements which in the long term ought to be carried out from the point of view of making the farm economic, I should have thought that he would be in no danger. If he were a hobby farmer and simply said, "I am going to sell my farm, but I shall continue farming it exactly as I have farmed up to now for another two or three years before I sell it," I think he might be in danger, and probably ought to be.
My hon. Friend the Member for Stroud (Mr. Kershaw) and my hon. and gallant Friend the Member for Dorset, North (Colonel Sir R. Glyn) raised the question of a farmer genuinely trying to earn a living under difficult circumstances. If he were genuinely trying to earn a living out of his farm and doing his best, therefore, to farm it in the best commercial way of which he was capable, I think he would be perfectly safe under the Clause. There is nothing in the nature of hobby farming about it if he is genuinely trying to make a living out of it.
Both my hon. Friends raised the question of horticulture. We all know what


a precarious industry that is and how sharp changes in it can be. There can be a series of bad years when losses run, and no one can stop that happening. Any series of losses will be considered against the background of the trade, the nature of the trade and the scope or profitability. I do not think that any horticulturist who is doing his best to operate his holding on a commercial basis, if the holding has any possibilities of being a commercial unit, is in danger.
The inspector of taxes has been talked about a great deal. If the farmer is dissatisfied his appeal, if he wishes, goes to the local General Commissioners. I used to be a General Commissioner. Certainly my colleagues and I used to pride ourselves on the fact that we knew what was possible and feasible in the way of profitability. Certainly every case which came to us we considered against the background of what was practicable and possible. I do not think that a farmer is likely to get a fairer or better hearing than he would be likely to get from his neighbours, who know the possibilities of farming in the area.
My hon. Friend the Member for Kidderminster (Mr. Nabarro) asked me an extremely difficult question to answer about the nationalised industries. I should say that the proviso in lines 3 to 6 of page 13 was intended more for marketing boards and possibly some local authorities. We do not consider that anything which could approximate to a hobby or amenity operation of a business would come within the scope of the nationalised industries, but, as my hon. Friend has raised the matter, I shall look at it and see if I can find any possibility of any danger from that proviso.
This Clause is not designed to catch any undertaking which is run as a serious business, even if it is not very successfully managed. We are after the extreme cases which do not justify the term "farming undertaking", in which expenditure very greatly exceeds income or any possible income which can ever be made and in which, however long the period, no degree of profitability can ever be reached. After listening to the debate I am still as sure as I was at the beginning that no genuine farming enterprise, in which the aim is to run as efficiently and productively as possible,

with the long-term purpose of earning a profit, can possibly be endangered by the Clause. We have drawn it as carefully and as narrowly as we can and in a way which I hope, will mean that it will be effective in catching the kind of cases which I believe every hon. Member in the Committee wishes to see caught.

Mr. Diamond: Let us assume that we are talking only about that kind of case which every hon. Member in the Committee wishes to see caught. Will the Chancellor deal with the substantial point that by the Clause he is attempting to deal only with that part of those people's expenditure which is greater than their income? Why not deal with the whole of their expenditure on the ground that it is an activity of which the Revenue does not approve? Why deal only with the loss and not with the whole of the expenditure?

Mr. Amory: I believe that the cases in which the serious abuse takes place are those where there are very substantial losses. I do not believe that the other cases to which the hon. Member has referred amount to serious abuse. We are out to deal with extreme cases which cannot be justified by any consideration.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 19.—(SALE OF SHARES IN CERTAIN TRADING COMPANIES.)

The Solicitor-General: I beg to move, in page 14, line 13, after "is" to insert "the appropriate proportion of".

The Deputy-Chairman: Is it convenient for the Committee to discuss, at the same time, the Amendments in line 17, to leave out from the second "the" to the end of line 18 and to insert:
proper consideration for all the issued shares in the company".

In line 19, to leave out "the appropriate proportion of".

In line 23, to leave out "the appropriate proportion of"?

The Solicitor-General: I thought that we could discuss the first five Amendments—the four which you have mentioned, Sir William, and the Amendment


in page 14, line 39, after "section" to insert:
the proper consideration for all the issued shares in a company shall be the actual consideration for the sale of shares mentioned in subsection (1) of this section increased (unless that sale was of all the issued shares) in the proportion which the total number of issued shares bears to the number of shares sold:
Provided that where the issued shares of the company are not all of the same nature or do not all have the same rights attaching thereto, the proper consideration for all the issued shares in the company shall be ascertained for the purposes of this section by aggregating the value of the trading stock of the company. ascertained as on a sale in the open market at the time of the sale of shares, and the values mentioned in paragraphs (a) to (c) of the foregoing subsection and deducting therefrom the aggregate amount of the liabilities of the company at that time.
(6) for the purposes of subsection (3) of this section the appropriate proportion, in relation to any sale of shares, is the proportion which the actual consideration for that sale bears to the proper consideration for all issued shares in the company, so however that where the proviso to the foregoing subsection has effect".

The Deputy-Chairman: There is a little difficulty in taking the Amendment in line 39 at this point, because there is an Amendment to that Amendment in the name of the hon. Member for Gloucester (Mr. Diamond). I think that it will be best to take the first four Amendments and then to deal with the Amendment in line 39, at which point the hon. Member for Gloucester can move his Amendment to it.

The Solicitor-General: I shall be in great difficulty, in any event, in telling the Committee what these Amendments mean and I think that I should find myself helpless if I could not refer to the Amendment in line 39.

Mr. Mitchison: The position, I take it, is that the Solicitor-General will be speaking to the Amendment in line 13 and that he may also refer to the Amendments in line 17, line 19, line 23 and line 39, to the last of which my hon. Friend the Member for Gloucester (Mr. Diamond) will, in due course, move an Amendment.

The Deputy-Chairman: That is so.

The Solicitor-General: I am obliged to you, Sir William.
This Clause deals with a type of tax avoidance which has had no defenders at all, and in the public comment on it

and on some of the subsequent Clauses which attach to it there has been general approval of what we have done. May I show how it works? Assume that in the ordinary way of business a company is formed to put up a large block of offices and at the conclusion of its operation to sell those offices to a company which intends to hold them as an investment. Obviously, for the company which is putting up the building, the building is its trading stock and it will pay tax on the profits which it makes on putting up and selling the building.
8.45 p.m.
What has been happening is this. Instead of the company which puts up the building selling its building, its trading stock, when the building is completed or almost completed the shareholders in the company that has put up the building sell their shares to the company which is to hold the building as an investment. By that very simple device, the first company has converted what is a trading profit into a tax-free capital gain in the shape of the payment for the shares.
That is not only susceptible of being carried out by companies that are dealing in buildings or land. It is obviously susceptible to extension to any case where the trading stock in the first company comprises some very large single item. I suppose that a large generator or anything like that would be equally capable of being used for the purpose of carrying out this avoidance device. It is, of course, obviously grossly unfair that one type of trading company should be able to dispose of its trading stock in such a way as to avoid the usual taxation payable on the profit arising on the disposal of trading stock, and thereby avoid paying its appropriate share of taxation, at the expense of other taxpayers—and of other traders, in particular.
Having said that, I must explain how the Clause operates. I apologise for wording that I admit is very difficult of apprehension. I can only pray in aid what the Royal Commission said about this type of case:
We accept that there are several valid reasons why income tax legislation should be difficult and obscure. Not infrequently, its conceptions represent an attempt to dress what are really mathematical formulae in the vesture of English prose.


I regret to say that that particularly applies to the subsections we are now seeking to amend. If it were not so, I should have asked the Committee to take on trust what the subsections do as amended, but I think that I owe the Committee an explanation of how the Clause works. I hope that if I give an explanation on the Amendment it may save time on the Question, That the Clause stand part of the Bill—

Mr. Mitchison: Perhaps I may ask a question of the Solicitor-General now—and also take the opportunity of thanking him for dealing with the matter in this way. I am sure that he is enlightening all of us.
Suppose company A owns a site, let us say, and puts up a building on that site. It thereby has an increase in its assets. Its shares are then sold to company B—or, at any rate, to someone else. What happens to the building? It still remains the property of company A. Perhaps the Solicitor-General will explain that.

The Solicitor-General: Yes. Company A has passed into the ownership of company B, and the shareholders of company A, who financed the building or, perhaps, part of it, instead of having to pay tax on the profit that has been shown on the disposal of their trading stock, take it in the form of a capital appreciation in the purchase price of their shares. The hon. and learned Member for Kettering (Mr. Mitchison) has realised that what is sold are the shares belonging to the shareholders in the first company. It is the sellers with whom we are concerned.

Mr. Mitchison: Let us take the state of affairs which the hon. and learned Gentleman has explained. Company A still owns the appreciated asset. At some time or another, that appreciated asset will pass to someone else, dealt with in some way or another— or is that not so? Does the shell, so to speak, the form of company A, remain permanently in the hands of the purchaser of the shares?

The Solicitor-General: The whole essence of this operation is that the purchaser intends to hold the asset. It works only in that case. Instead of buying the building as he would normally do, when completed, holding it as an investment and letting it for offices and flats, he holds the shares which

control the company which still owns the asset.
Subsection (1) describes the kind of company, sales of which are within the Clause. Also, it lays down the first condition for the operation of the Clause, that is to say, that there must have been a sale of the shares of a trading company of such a prescribed type to a person who either at the time controls the company or will control it after the sale.
Subsection (2), in effect, lays down the second condition for the operation of the Clause, that is to say, that after the sale of the shares the trading stock will not have been disposed of in the course of trade. In other words, it will be held, as I tried to make clear to the hon. and learned Member for Kettering (Mr. Mitchison). The subsection works in bringing the Clause into operation unless it is shown that all the trading stock belonging to the company at the time of the sale will continue to be used as trading stock thereafter. If that is not shown, the seller will be liable to tax on his share of the profit which the company would have made if the transaction had been carried out in a straightforward manner, in other words, if the trading stock had been sold in the usual way instead of there having been the colourable transaction in the shares of the company.
We then come to what I regret to say are complicated subsections, subsections (3) to (5), which are designed to ascertain what is the seller's share of such profit. The first task is to ascertain what would have been the profit on the sale of the trading stock if it had been straightforwardly sold. That is obviously not the whole of the purchase price of the shares because the purchase price may have been increased by there being net assets other than the trading stock or reduced by there being net liabilities.
For example, if a company had as its trading stock a building worth £500,000 and net liabilities of £300,000, and all the shares were sold, the purchase price would be £200.000, because the purchaser would have taken over the liabilities as well as the building. Thus, if one wishes to ascertain the value of the trading stock, in this case the building, one must add to the purchase price of £200,000 net liabilities of £300,000 to


reach the figure of £500,000. Equally, on the other hand, if a company has net assets, apart from the building in question, these must be deducted from the purchase price.
Again, perhaps it might help the Committee if I gave an example. Let us take a building worth £500,000 and other net assets worth £300,000. The purchase price would be £800,000. To arrive at the value of the building, one deducts the net assets other than the building, namely, £300,000, from the purchase price to arrive at the £500,000. These are calculations laid down by subsection (3, a) and subsection (3, b).
To make these calculations, the first thing to do is to value the other assets. The way to do this is laid down in subsection (4).
Let me give a simple example. Take the case where there are no liabilities and a purchase price of £500,000 for the shares. It would obviously be unfair to take that as the value of the trading stock alone. In the first place, it might contain an element paid in respect of plant and machinery. That is dealt with in subsection (4, a). Secondly, the purchase price for the shares would contain an element for goodwill. That is allowed for if the goodwill had been paid for on a previous purchase of the business. That is dealt with in subsection (4, b).

Mr. Denzil Freeth: Will the figure of goodwill in the balance sheet be taken into consideration in relation to subsection (4, b), or will the valuation be entirely separate from the value given in the last balance sheet?

The Solicitor-General: I think that I am right in saying that it does not matter at what figure it stands in the balance sheet. The test is: what has been paid for it? Perhaps I will have an opportunity to check that point before we come to the Question, "That the Clause stand pant of the Bill". If what I have said is wrong, I will correct it.
The third item is assets other than the trading stock or the assets on which capital allowances are given—things like securities and cash at the bank. These are valued at market valuation and are taken into account in subsection (4, c). If each of those assets under paragraphs

(a), (b) and (c) of subsection (4) is valued at £100,000, there is a total of £300,000 under subsection (4).

Mr. Freeth: I am sorry to interrupt my hon. and learned Friend again, but these are important points. My hon. and learned Friend has referred to the value of the sale of other assets. If those assets include shares in non-quoted companies, will the same procedure be adopted for their valuation as in the case of shares in an unquoted company in a deceased's estate?

The Solicitor-General: The test is sale in the open market. I think that that is the same test as in the case that my hon. Friend has given. I do not like answering these points "off the cuff" and, again, I will check what I have said, but I think that my hon. Friend is right.
I have taken the case so far where the other values under subsection (4) amount to £300,000. The next thing that one has to consider is the liabilities. With aggregate liabilities of, say, £100,000, by deducting them from the other assets to which I have referred one arrives at the net assets other than the building in question. That transaction is carried out under subsection (3, a). As amended it will read
reduced by … any excess of the aggregate of the values specified in the following subsection over the aggregate liabilities at the time of the sale.
We have then got to the net assets, and by deducting the net assets from the purchase price one arrives at the proper purchase price ascribable to the trading stock. Again, that is what subsection (3, a) says. The value of the net assets is deducted from the proper consideration for the shares.
"The proper consideration" is defined at the beginning of Amendment No. 67, in page 14, line 39. In the case that I have given where all the issued shares are sold, it is the actual consideration. The Committee will not want me to go through the same rigmarole with regard to net liabilities. I think it follows that, in the case of net liabilities, subsection (3, b) is applied as against subsection (3, a) in the case of net assets.
What we have so far is enough for the simple case where the shares have been sold. We have what would be the proper price for the trading stock if the whole


of it had been sold. Of course, only part of the shares may have been sold. That introduces a complication. Take, for example, the case of a temporary which wants to use the building and has already paid for half the shares in the company, the other half of the capital having been put up by the builder. If the user buys the builder's half he is, in effect, buying only half the building and the builder is getting only half the profit on the trading stock.
9.0 p.m.
What we have to get at is the profit ascribable to the trading stock, which is the profit assessable to tax. We have to assess the appropriate proportions of such profits attributable to the parcel of shares sold. That is Amendments Nos. 63 and 64 and the following three Amendments. which are consequential. The Amendments say that we must take the actual consideration paid and then multiply it so that it would be the proper consideration for all the issued shares in the company. That is in Amendments Nos. 67 and 64. Amendment No. 67, line 3, states:
. increased … in the proportion which the total number of issued shares bears to the number of shares sold 
We are then back to our earlier case where we worked out what was the proper consideration for all the issued shares and we make the adjustments to that figure in accordance with subsections (3) and (4), in the way I described. That gives the proper purchase price for the whole of the trading stock. We work out from that what would be made on the sale of the whole of the trading stock—-that is, lines 13 to 17—and all that we have to do then is to work out the appropriate proportion attributable to the seller's parcel of shares. In other words, if he sold half the shares he would he taxed on half the profits. That is Amendment No. 63 and the first part of the new subsection (6) in Amendment No. 67.
There is still one other complication which is taken care of in the proviso to Amendment No. 67 and the end of subsection (5) as it appears in the Bill. The shares may not be all of one class. Amendment No. 67 provides for this in the proviso. It works, first, by aggregating all the assets of the company, that is to say, the trading stock plus the assets mentioned under subsections (4, a), (4, b) and (4, c), and deducting the aggregate

liabilities, that is, lines 11 and 12. That represents the value of all the shares. From that we get the profit on the sale of the trading stock. We then go to the new subsection (6), line 15, starting with the words, "so however" to the end of the present subsection (5), and this provides that the profit on the whole of the trading stock shall be divided among the various classes in such proportion as may be just.
Again, I apologise for the complexity of these Clauses. It is inherent in the situation when we are striking against a very complicated device and we do not want to go further than we must to bring it to an end. Secondly, we are, trying to translate what the Royal Commission said were, in effect, mathematical formulae into legal terms, and that makes the wording complicated.

Mr. Mitchison: I am obliged to the hon. and learned Gentleman. I appreciate the arrangement for finding the appropriate proportion when the shares are of different kinds, but the arrangement involves comparing the actual consideration with what, in all probability, would be a larger figure, the proper consideration for all the shares.
Is there not a difficulty there? Suppose that the actual consideration is rather high or rather low and, therefore, does not bear a true proportion to the proper consideration, which is arrived at in a different way. Will the hon. and learned Gentleman consider this and let me know whether the difficulty is, or can be, met? I hope I have made myself clear.

The Solicitor-General: I am sure that the fault is mine, but I do not gather the case which the hon. and learned Member is putting. If the shares are all of one class, to find the profit that would have been made on the sale of the trading stock, when all the shares were sold, one looks at the actual consideration that was paid for all the shares, deducts the net assets, including the assets which are not ascribable to the trading stock, and one arrives at the trading stock.

Mr. Mitchison: I am obliged to the hon. and learned Gentleman. I apologise if I did not make myself clear. May I give an instance? Let us assume a company with a complicated capital structure and that not all the shares are sold. We then have to sort out the appropriate


proportion by comparing the amount of the consideration with what is called, in the Amendment, the
proper consideration for all the issued shares in the company".
I see how that works where all the shares are similar. Where they are not similar, however, we are left with two figures, one of which is arrived at on the basis of the actual consideration and the other is arrived at on the basis of the proper consideration.
The hon. and learned Gentleman has told us how the proper consideration is arrived at. Surely, the proportion is the proportion of one thing to another and we are comparing ultimately two in-comparables.

The Solicitor-General: The case cited by the hon. and learned Member is the one raised by the following Amendment of the hon. Member for Gloucester (Mr. Diamond). I am sure that we shall have a chance of discussing it then, when, I am happy to say, my hon. Friend the Economic Secretary will be dealing with it.

5
"the proper consideration for all the issued shares in a company shall be the actual consideration for the sale of shares mentioned in subsection (1) of this section increased (unless that sale was of all the issued shares) in the proportion which the total number of issued shares bears to the number of shares sold:


10
Provided that where the issued shares of the company are not all of the same nature or do not all have the same rights attaching thereto, the proper consideration for all the issued shares in the company shall be ascertained for the purposes of this section by aggregating the value of the trading stock of the company, ascertained as on a sale in the open market at the time of the sale of shares, and the values mentioned in paragraphs (a) to (c) of the foregoing subsection and deducting therefrom the aggregate amount of the liabilities of the company at that time.


15
(6) For the purposes of subsection (3) of this section the appropriate proportion, in relation to any sale of shares, is the proportion which the actual consideration for that sale bears to the proper consideration for all issued shares in the company, so however that where the proviso to the foregoing subsection has effect".—[The Solicitor-General.]

Question proposed, That those words be there inserted.

Mr. Milan: I beg to move, as an Amendment to the proposed Amendment, in line 7, after "thereto", to insert:
and the sale was not of all the issued shares".

Mr. Stevens: On a point of order. I seek your guidance, Sir William. While I much appreciate the procedure which my hon. and learned Friend the Solicitor-General has followed in taking us through the whole Clause and having a general discussion on Clause 19, will that exclude a short debate on the Question,

Mr. Denzil Freeth: I should like to refer to page 14, line 40, and ask Who decides as to the proportion which may be just between different classes of shareholders. Is it to be the shareholders themselves? There can be occasions when the interests of different classes of shareholders can be diametrically opposed.

The Solicitor-General: That will be decided, if necessary, on appeal to the General or Special Commissioners. Obviously, for the reason given by my hon. Friend, it is not susceptible of decision by the shareholders themselves.

Amendment agreed to.

Further Amendments made: In page 14, line 17, leave out from second "the" to end of line 18 and insert:
proper consideration for all the issued shares in the company".

In line 19, leave out "the appropriate proportion of".

In line 23, leave out "the appropriate proportion of".—[The Solicitor-General.]

Amendment proposed: In page 14, line 39, after "section", insert:

"That the Clause stand part of the Bill?"

The Deputy-Chairman: We have not got that far, because we are now turning to an Amendment in the name of the hon. Member for Gloucester (Mr. Diamond) which is being moved by his hon. Friend the Member for Glasgow, Craigton (Mr. Millan) and there is to be a separate debate on that.

Mr. Millan: The Solicitor-General has given us a short explanation of what the Clause is about and I am sure that we are all indebted to him so far as we have understood what he has been saying. The problem is to find the value of the trading


stock and the hon. and learned Gentleman has said that that is done by a process of elimination, by eliminating from the assets and liabilities of the company all the assets and liabilities, except the trading stock, and then deducting the net assets from the proper consideration, which is defined in the Clause.
One of the problems is to get a value for the proper consideration. When there is only one class of share, that is a matter of pure arithmetic, in that one takes the actual consideration which has been given for the number of shares which have actually passed in transfer and grosses it up to get the actual consideration, which is then defined as the proper consideration for the whole of the shares of the company.
But when there are different classes of shares, it is very much more difficult to gross up and get the assumed total consideration. Therefore, under the proviso of the Chancellor's Amendment, a special procedure is laid down in a case where a company has shares which are not of the same nature and which do not have all the same rights attaching thereto. One can see that there may be circumstances in which that special proviso is required.
The special proviso makes a considerable change in the whole procedure, because, instead of getting the value of trading stock by a process of elimination, the proviso introduces the principle that the trading stock will be ascertained as on sale in the open market, whereas the rest of the Clause is designed to prevent the necessity of having to get the value of the trading stock as ascertained on a sale in the open market, presumably, because that is something which in normal circumstances will give rise to considerable difficulty.
We therefore want to consider whether the proviso is sufficiently restrictive, in other words, whether it is in fact restricted to circumstances in which the proper consideration cannot otherwise be calculated. It is my submission that in fact the proviso is too wide and that it includes certain cases where the proper consideration could well be calculated in terms of the Clause taken as a whole, because, if all the issued shares in the company are sold, then the question of

grossing up does not arise and the actual consideration is known and is, therefore, the proper consideration, and there seems to be no necessity for the proviso in that case.
The purpose of my Amendment is to eliminate from the proviso cases in which all the issued shares in the company are actually sold and to restrict the proviso to cases of companies having different classes of shares where not all the shares of the company are actually involved in the transaction.
It would be possible to get the proper consideration with a company with different classes of shares, even if the circumstances were only such that a certain number of each category of shares was involved in the transaction, because one could then gross up each category of shares individually and add the gross amounts together to get a total consideration, which would then become a proper consideration under the terms of the Clause. Unless, therefore, I am misunderstanding the Chancellor's Amendment as it is in its present farm, the proviso is far too widely drawn and he ought to be able to accept my Amendment. This is a technical point, and no political considerations are involved. My Amendment would improve the Government Amendment.

9.15 p.m.

The Economic Secretary to the Treasury (Mr. Anthony Barber): Perhaps I may be allowed to congratulate the hon. Member for Glasgow, Craigton (Mr. Millan) on the exposition of his Amendment. As he realised full well, and as my hon. and learned Friend the Solicitor-General made clear, under the Chancellor of the Exchequer's Amendment the amount on which tax is payable is derived from various factors, one of which is the proper consideration for all the issued shares, which is referred to in the new subsection (5) which results from the Amendment moved by my hon. and learned Friend.
Normally, of course, this will be based, as the hon. Member for Craigton said, on the actual consideration for the shares sold. Obviously this is the simplest method of making the calculations. Clearly, as accepted on all sides, such a calculation, by reference to the actual consideration for the shares which are sold, would be quite inappropriate in a


case where there were different classes of shares, or where all the shares did not have the same rights. So it is that my right hon. Friend the Chancellor of the Exchequer has proposed the method of calculation which is covered by the new proviso. I need not refer to it in detail.
I understand the hon. Member for Craigton to be saying that this proviso, while he accepts it as being necessary in the case of shares of different classes, is not necessary in the case of shares of different classes in one particular circumstance—that is where all the issued shares are sold. He says that in that event one would not need to apply the same difficult calculation stated in the proviso, but could go straight to the more simple calculation which is made by reference to the actual consideration for the shares.
I appreciate the point which he has in mind, but I doubt whether, if his Amendment were to be accepted, it would in 'practice have the effect for which he hopes. A taxpayer who was disposed to sell all his shares could—if they were shares of varying classes and he saw some disadvantage in having his liability calculated by reference to the actual consideration, which is what the hon. Member's Amendment would mean, or, on the other hand, saw same advantage in having his liability calculated by reference to the market value of the trading stock, which would be the case if the proviso were left unamended—quite easily avoid the effect of the hon. Member's proposed Amendment by retaining in his possession one share.
Nevertheless, despite the fact that the principal object of the hon. Member's Amendment can be avoided quite easily by the taxpayer, I realise that there is a point here which should receive further consideration. I wanted to delay the decision until I had heard exactly what the hon. Member had in mind. I hope that on the assurance that we will give further consideration to what he said, the hon. Member will allow my right hon. Friend to decide whether in all the circumstances we think it is appropriate to introduce an Amendment on Report.

Mr. Diamond: I am sure that my hon. Friend the Member for Glasgow, Craig-ton (Mr. Millan) is grateful that the matter is receiving consideration. I rise to

address the Committee only to make sure that that consideration will be on the right assumption. The consideration given will not be proper consideration if the Government misconceive one of the reasons behind the Amendment. The Economic Secretary to the Treasury has assumed a reason behind the Amendment which does not exist, namely, an attempt to avoid manipulation by a potential tax avoidance. That is not the purpose of the Amendment. Its purpose is to retain simplicity in all cases where one does not have to go into complexity. It rests on the proposition that even in a Finance Bill simplicity is better than complexity.
The simplicity is the machinery provided for the generality of cases under the Clause. The complexity is the single piece of machinery devised to meet awkward circumstances where one is selling part of the shares and those shares have different right or are of different categories. I am sure that consideration aught to be given to the Amendment but only for the purpose of retaining simplicity where that is possible.

Mr. Barber: I appreciate the point that the hon. Member has made and I realise that the purpose is to substitute simplicity in one class of case for complexity. The only point I was making was that if a taxpayer thought that complexity would pay him he could easily avoid the simplicity of the Amendment, but that is not conclusive by any means against the proposition put forward by the hon. Member for Craigton.

Mr. Diamond: A would-be manoeuverer could manoeuvre whether the Amendment were accepted or not. Therefore, the Amendment does not deal with possible manoeuverers. It has only the wholesome purpose of getting simplicity in a Finance Bill.

Mr. Millan: This is a question of simplicity. As the Clause as a whole has been drafted from the point of view of getting the value of trading stock by the process of elimination instead of getting a valuation as on the open market, that is presumably the simplest method and it is a method that should be used in all circumstances where it would give accurate results, and that is the whole reason for the Amendment.


It is true that when dealing with transactions of this complexity and trying to provide legislation to deal with the different circumstances that may arise, one has to have some regard to the question of manipulation. The Economic Secretary seems to have that very much in mind and I am sure that all of us are very glad that it is so. On the generous undertaking which the Economic Secretary has given to look at this question, I beg to ask leave to withdraw the Amendment.

Amendment to the proposed Amendment, by leave, withdrawn.

Proposed words there inserted.

Mr. Mitchison: I beg to move, in page 15, line 36, at the end to add:
(9) For the purposes of subsection (1) of this section the expression "a person" shall be deemed to include—

(a) persons carrying on business in partnership,
(b) persons acting together by agreement in order jointly to secure control of the company,
(c) trustees of the same trust; and
(d) a person and his nominee or nominees.

The Deputy-Chairman: Perhaps we could discuss also the Amendment in page 16, line 26, at the end to add:
(4) Subsection (9) of the last foregoing subsection shall apply to subsection (1) of this section as it applies to subsection (1) of that section.

Mr. Mitchison: I respectfully agree. Clauses 19 and 20, and, indeed, Clause 21, are all a part of the Bill which deals, broadly speaking, with the same subject matter.
On the Amendment which I have moved, the operation of Clause 19 depends on a sale to a person who has, or in consequence of the sale will have, control of company A. Let us put it quite generally. Supposing there is a sale to a group of persons who have control as a result of the sale. Unless I have interpreted the Clause wrongly, it seems to me that in that event one may have all the mischief at which the Clause is aimed yet the purpose of it may be avoided by the sale being to a group of persons instead of to one person. That is the short and simple point which is intended to be raised by the Amendment.
In the Amendment we have suggested four likely groups, a partnership, a group of persons agreeing jointly to secure control of the company and acting to that end—they may or may not be partners and it does not matter very much that there will be overlapping cases—trustees, and someone and his nominee or nominees. I can see that the last category might conceivably be covered.
The second Amendment is simply to apply the same point to Clause 20, where again the Clause moves on a sale to a person who has, or in consequence of the sale will have, control of the company.
The only other matter that I need mention very shortly is that there are provisions in Clause 22, but I think I am right in saying that they do not cover this point. They cover other points that have some resemblance in some respects, but not much, and I hope that we shall hear from the Government that there is an answer to this difficulty. In one Finance Bill after another one seems to find cases where elaborate provision is made to cover a single person, but it does not always cover the case where there is more than one person acting together for some reason or another.

Mr. Barber: As the hon. and learned Gentleman says, the purpose of the Amendment is to cover a wide variety of cases in which shares in the company are sold to persons acting together to secure the use of the trading stock and control of the company. For reasons which the hon. and learned Gentleman will appreciate, I think it is somewhat doubtful whether the Amendment is necessary—and perhaps I can explain why—except perhaps in one of the four cases referred to in the Amendment.
9.30 p.m.
Paragraph (a) of the Amendment refers to
persons carrying on business in partnership.
It is a matter of general interpretation that the singular can be read as including the plural, and the words in subsection (1),
shares in the company are sold…to a person…
would thus include the case of a sale to two or more persons jointly. The acquisition by a partnership would therefore be covered.
I will leave paragraph (b) and go to paragraph (c), to which the same considerations apply. A joint acquisition by trustees on behalf of a trust is covered for the same reason. Turning to paragraph (d), the hon. and learned Member will find that that point is covered by Clause 22 (3). That subsection reads:
For the purposes of this and the three foregoing sections a sale to a company under a persons' control, or to his nominee, shall be treated as a sale to him.
The one category to which I have not yet referred is that covered by paragraph (b) of the Amendment. I agree that this possibility is not covered as the Clause stands. We have considered whether it is likely that it would be necessary to cover this sort of arrangement, and have reached the conclusion that it is unlikely, although I agree that it is possible, that two or more companies, or two or more individuals, might wish to share the use of a building or the other trading stock referred to in subsection (1) and might proceed by one of the devices which the Clause is intended to counter.
Nevertheless, in view of what the hon. and learned Member has said, I hope that he will allow us to consider the matter further to see whether it is necessary to bring in an Amendment on Report to cover this possibility, against the background of the sort of avoidance devices that we want to cover by the Clause.

Mr. Mitchison: On a point of this sort I should be very glad to accept the suggestion that the hon. Member has made. I see the force of the singular and plural point; indeed, I had it in mind. But where the whole Clause deals with the sale by a person who has control, or will have control as the result of the sale, it seems a little doubtful whether the Interpretation Act would apply. The foundation of the whole Clause is the question of control by a single person.
I am not particularly disturbed about trustees or the nominees; they are probably covered by the subsection to which the hon. Member referred. But I submit that the first two cases merit consideration. I would also point out that this has been a rather bad racket, and that the people engaged in it are not above making ingenious arrangements to get round the law by getting more than one person to act together. Indeed, I am afraid that the fact of put-

ting down the Amendment and discussing it may make it even more necessary to provide against the operations of these persons.
I therefore hope that the Government will consider this point. I have the feeling that in this and other cases we are wrestling against odds, that time is on the side of the swift-footed crooks, and that the Treasury and hon. Members of the Committee are lagging a long way behind. That has been the experience of the past, and that is the reason for some of the other provisions in the Bill.
I thank the hon. Member for the promise that he has made, and I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Stevens: I beg to move, in page 15, line 36, at the end, to add:
(9) If after the sale of shares, any asserts of which the value was determined for the purpose of this section in accordance with the provisions of paragraph (a) of subsection (4) are disposed of and the sale, insurance, salvage or compensation moneys exceed the value attributed to the asset under the said paragraph (a) of subsection (4), the excess shall be disregarded in determining any balancing charge to be made as a result of the disposal.
My hon. and learned Friend, in his singularly lucid and helpful discourse on the various Amendments which were discussed en masse at the start of our consideration of the Clause, pointed out that in some cases, indeed I think in a very large number of cases, these companies whose main object is to construct buildings will, none the less, when the buildings are finally completed, have left in their possession certain assets such as plant and machinery, which would be the subject of capital allowances for Income Tax and Profits Tax purposes.
Subsection (4, a) lays down the basis upon which these assets would be valued; namely, their written-down value for Income Tax purposes. One has in mind that in these circumstances it is very probable that the plant and machinery would be disposed of. It would be sold or disposed of in some other way, possibly through an insurance claim, salvage or something of that kind, and the amount realised might be in excess of the written-down value for Income Tax purposes. Quite obviously, from that will follow a balancing charge in the ordinary way for tax purposes, and I want an assurance


that in these circumstances we should not have the same higher value substituted for the value under subsection (4, a) and thus get a double charge, one the ordinary balancing charge for tax purposes and the other a balancing charge for the purpose of the Clause. I have put down this Amendment in order to clarify that position.

The Solicitor-General: My hon. Friend the Member for Portsmouth, Lang-stone (Mr Stevens) has explained the purpose of this Clause in terms which it would be presumptuous on my part to try to improve upon. My hon. Friend is perfectly right. This Clause as drawn at the moment is susceptible of charging the tax twice on plant and machinery under subsection (4, a) for the reason that he gave
The only trouble is that, although his Amendment is a perfectly correct way of dealing with that problem as an Amendment to the Bill as it is printed, it does not fit the Bill as it has just been amended in the Committee, because in the case where the company's share capital is not all of one class, the Clause does not work by reference to the actual consideration for the shares, but by the figure built up from the value of the assets, and the value of the assets is their written-down value.
If my hon. Friend, having drawn attention to this matter, for which we are very grateful, would be good enough to withdraw his Amendment, I should like to consider how that point can be met before another stage of the Bill.

Mr. Millan: I appreciate why the hon. Member for Portsmouth, Langstone (Mr. Stevens) has put down this Amendment, but it tells only half the story. It is perfectly true that, if an asset has been under-valued, at a subsequent date it will attract a balancing charge, and that has the effect of increasing the trading stock for the purpose of the Clause taken as a whole. On the other hand, if the capital asset has been over-valued, the effect has been to decrease the trading stock value for the purposes of the Clause as a whole. Therefore, I hope that if the Solicitor-General is to look at the question of inserting a provision of this sort into the Clause, he will not only look at it from the point of view of dealing with the balancing charge, but also from the

point of view of dealing with the balancing allowances. If it is a question of inequity that someone should be charged tax twice, it is also a question of inequity that someone should get double allowances. That is what, in fact, will happen, unless an Amendment is drafted in such a way as to exclude the balancing allowances as well as the balancing charges.
I was surprised that the learned Solicitor-General was willing to accept this Amendment as it is drafted, or rather the spirit of the Amendment, without drawing attention to the effect of this extremely important aspect.

The Solicitor-General: I will certainly look into the aspect of the balancing allowances.

Mr. Stevens: In view of all the circumstances and the assurance given by my hon. and learned Friend, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Motion made, and Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. Houghton: This is the first of a series of Clauses intended to check one of the biggest Income Tax scandals of modern times. Behind this placid debate, which has been a mixture of law and accountancy, lies a story of almost daylight robbery of the public by property sharks who are raised to the stature of national heroes; who appear on the television, who are interviewed in the newspapers and who say, "I made £1 million. I started with £10. Then I bought something and sold it. Then I bought something else and sold that. Then I bought something with money I had not got and sold it, and look at me now"—

Hon. Members: Broke.

Mr. Willis: That is why they are all here.

Mr. Houghton: This Clause catches income dressed up as capital and we begin to understand why these enormous blocks of buildings are going up and why they are built by one company which sells itself to another and the proceeds are treated as a capital gain in the hands of the vendor. For once in a way there is an ingenious device being used against


an ingenious device. This Clause treats the substance of the vending company as its stock-in-trade. If that is not so, the price received by the seller is taxed as income.
I regard this as legislation in blinkers. One day, Sir Gordon, I think that it will be necessary for me to run away with the Mace in protest against the way in which we are asked to do our business in connection with the Finance Bill. First of all an unintelligible Finance Bill is published without a word of explanation. Then we have—

The Chairman: Order. I must ask the hon. Gentleman to relate his arguments to the Question before the Committee.

Mr. Houghton: I am coming to this very Clause in a moment, Sir Gordon.
I am saying that first a Finance Bill is published without a word of explanation. Then we get an explanation of the various Clauses, including this one. The next thing that happens is that Amendments are put down in the name of the Chancellor of the Exchequer altering the Clause which was originally explained without a single word of explanation about what the right hon. Gentleman is up to. I see that he is being taken to task by a reputable newspaper for this practice. I say that nine-tenths of the Committee look at this Clause in a state of more or less bewilderment, hoping that it will achieve its purpose but not being very sure that it will.
9.45 p.m.
I ask the Solicitor-General one question which I think is material to consideration of the Question, "That the Clause stand part of the Bill." It is whether Clause 26, in whatever form the Committee or the House may eventually pass it, will stand guard over Clauses 19 to 25. I seems that if Clause 26 is to stand guard over the attempts at closer definition of avoidance practices in these Clauses we have rather more assurance that dodgery will be checked, even if it might get through the actual terms of the Clauses concerned. If, however, each Clause stands by itself, and Clause 26 has no relationship to those which go before, we may well find that the same humiliation will come upon us in a year's time when the Chancellor will say, "Despite

all our efforts last year, people are finding loopholes through our anti-avoidance legislation."
That, I think, is an important factor because here we have a Clause dealing with trading companies. We have a Clause which follows dealing with non-trading companies, another Clause after that dealing with holding companies, and another dealing with manufactured dividends. Unless Clause 26 is going to do something about the loopholes in these Clauses as distinct from dealing with new things which may be discovered apart from these Clauses, it will not be fully effective.
There I leave it. I have a mixture of indignation and contempt for the people who quite clearly have been robbing the Exchequer in recent years. I hope people outside will take note of the fact that the great mass of wage and salary earners in the country today are paying up to the hilt while these sharks are getting away with millions of pounds and depleting the Exchequer very seriously.
I should like to have an estimate from the Solicitor-General of the amount of money which has been lost altogether by these practices. I do not think it right, having regard to the gravity of the matter that we are discussing, that we should go on discussing it in the atmosphere of a pleasant Sunday afternoon. I know one has to bring dispassionate judgment and critical attention to the detail of Clauses of this kind, but there is a strong emotional background to all this and I do not think that we ought to ignore it, especially when we discuss the Question, "That the Clause stand part of the Bill."
Here we welcome once more the anti-avoidance devices which the Chancellor has put into the Bill. It makes us wonder, however, what would have happened to all this if the Chancellor had to occupy more of the Bill with current Budgetary legislation. I stress again that Clauses of this kind would be much more appropriate to a separate Bill, a taxes management Bill, which we could rely on the Government introducing in the normal course of the Parliamentary programme and not have to await the opportunity of putting proposals like this in a Finance Bill only when it is free from other encumbrances.
Some of these Clauses—and I am sure this is one—have been waiting for some time for the attention of the House and this Committee. Action upon them has been delayed, and while action has been delayed money has been lost. This fraternity probably thinks that it has already inherited the wealth and esteem of the country. I am glad that this Clause will put a stop at least to some of its malpractices.

Sir J. Barlow: Before the hon. Member sits down, will he say how he relates—

Mr. Houghton: I have sat down and I have said all I am going to say.

The Chairman: Order. I call the next speaker. Mr. Stevens.

Mr. Stevens: I sympathise with a good deal of the boisterous mood in which the hon. Member for Sowerby (Mr. Houghton) finds himself, on two grounds. First, I recognise the unfairness, as it seems to most of us on both sides of the Committee, when the "sharks"—if we can call them sharks—by clever devices change what he and I and you, Sir Gordon, would call income into nontaxable receipts. Secondly, I entirely share his views about the publication of an obscure Finance Bill and then, later, even more obscure Amendments. It would be of the greatest help if, at the time of the publication of the Finance Bill, there were also published a reasonably short note explaining the object of the exercise. This is not a new point, and I hope that the hon. Member's remarks have rubbed it in.
I want to raise two points about subsection (1, b) where reference is made to forming:
a substantial part of the assets of the company.
What is meant by "a substantial part"? That is important. I do not want to protect the "sharks" in any way, but I want to protect legitimate enterprises. [HON. MEMBERS: "Oh."] It is extraordinary how hon. Members opposite seem to have no wish to be just. They simply have a hunch, and they are not in the least interested whether it is carried out fairly or unfairly. We on this side of the Committee want to catch those who need to be caught, but we do not want to bring into the net those

who are carrying on perfectly legitimate trading enterprises from which the constituents of hon. Members opposite benefit very much.
I have in mind groups of companies which form subsidiary companies for a specific project. It could be a large firm of public works contractors. I believe that it is common practice, too, in the cinematograph entertainments industry for a separate production company to be formed for specific films. Those companies are disposed of when the film has been produced and has passed into the hands of the exhibitors. It seems to me that the Clause as drafted would bring into the tax penalty—if penalty is the right word—or tax charge the disposal of shares of those companies in the normal process of amalgamation and reconstruction when their useful job as part of the whole undertaking has been completed.
I do not know whether my hon. and learned Friend has considered that point. I should like him to make some observations on it and on the other point which I have raised.

Mr. Millan: Like other hon. Members. I welcome the Clause. It is, I think, a valiant and honest attempt to deal with a very serious abuse. I simply wish to ask three questions for clarification.
There is a reference in subsection (3, a) to "aggregate liabilities". My hon. Friend the Member for Gloucester (Mr. Diamond) and I had an Amendment on this point, which was not called. May I ask the Solicitor-General what he has in mind under the term "aggregate liabilities"? It is noticeable that when it comes to a question of assets, first, the assets are defined and, secondly, indications are given as to how the evaluation of assets in different categories is to proceed. But there is no corresponding definition of liability. In the normal course of events liabilities are quite easily determined and there is no necessity for a great deal of definition, but there is the question of contingent liabilities, or liabilities which are known but the exact value of which cannot properly be ascertained. They ought to be taken into account.
If we are dealing with a building company, for instance, which is the sort of company which will often be dealt with under the Clause, the question of


contingent liabilities might be very important from the point of view of common law claims for accidents by employees, and there might be quite substantial contingent liabilities if there were a particularly tragic accident on the site of a building. That would be material in calculating the net assets of the company for the purpose of the Clause.
My next point relates to subsection (4, b)—goodwill. I am not very clear about this, but from the Solicitor-General's previous answer I take it that goodwill enters into the reckoning only where there has, at some time or other, been an actual cash payment for it. That is very desirable, and I should like the hon. and learned Gentleman to confirm that that is the intention.
The third matter on which I should like some clarification appears in subsection (5), where the "appropriate proportion", in the case of a company with different classes of shares, is defined as
…such proportion as may be just having regard to the number and nature of the shares sold and the rights attaching thereto…
It is obviously impossible to lay down in this Clause all the different circumstances that might be expected to arise in particular cases. Nevertheless, this is just the sort of language that is bound to give the Inland Revenue a considerable amount of difficulty. It is, of necessity, rather vague, and the use of value terms such as "just" makes it all the more difficult of interpretation. I think that we need from the Government a clearer indication of how exactly they think this definition will be applied in practice.

Mr. Denzil Freeth: I should like to raise with the Treasury some points that were first brought to my attention through an article in the Financial Times of 10th May, signed, "Our Legal Correspondent". Although it is very important that we should, as the hon. Member for Sowerby (Mr. Houghton) said, catch all the sharks, for the sake of justice we want also to be careful that while catching the sharks we do not penalise the innocent minnow. I want to raise the case of the innocent shareholder, who might be the aunt, of either the hon. Member for Sowerby or of myself, who happens to be a shareholder in a company that has been going along placidly for many years

until it enters into one of the particular occupations described in the Clause, and eventually a take-over bid is made for its shares.
The shareholder to whom I refer, who might have been a shareholder for a very long time, finds herself in the position that if she was holding shares in a company manufacturing bull's eyes she would be able to accept the price offered by the would-be purchaser without incurring a tax liability, but because she happened, in all innocence and by chance, to hold shares in a company in the middle of erecting a building she is thereby immediately faced with a tax liability. This seems to me to be a danger.
Secondly, if the shares she holds are sold in the normal course of the management of her investments on the Stock Exchange—that is, if she sells them to a buyer of whose actual name she is ignorant until she receives the transfer—it may well be that the block of shares she sells to the purchaser is the block of shares that gives the purchaser the control of the company. Subsection (1) tells us that the Clause refers
…to a person who has, or in consequence of the sale will have, control of the company…
I feel that there should be some wording in the Clause—I know not what—to deal with this particular situation, however unlikely it may be deemed to be at the present time.
Thirdly, we have the question of how much tax a person caught up in this kind of thing need pay. It might be an amount which it would be very difficult for the seller to compute and it might be some time before the seller had full knowledge of it. As the article in the Financial Times said:
If, for example, the company is one which carries on a trade dealing in securities or Land or buildings, or of developing land, it is possible for the seller of the shares to be regarded as notionally having received the proportion of the profit which the company would have made if it had sold its trading stock and distributed the profits by way of dividend. His liability would depend upon what the purchasers did with the company they had acquired.
Finally, I should be grateful if the Treasury Ministers would look at the wording of subsection (6). The income chargeable under subsection (6) is to be
deemed for the purposes of this subsection to be the highest part of his income".


Therefore, we are dealing with a fairly substantial tax liability. Again, to quote the article in the Financial Times:
It is true that Clause 19 provides that any tax which is so chargeable on the former shareholder and which is not paid by him shall be recoverable from the company concerned; but the initial liability is undoubtedly his. And on what grounds can he properly refuse to pay? It is possibly desirable that the Revenue should be in a position to recover tax both ways, but the circumstances in which it will be sought to be recovered from each ought surely to be more clearly defined.
I have tried to see whether it was possible to put down Amendments to the Clause to highlight the particular difficulties to which I wished to draw attention, but I confess that my ingenuity was completely baffled in that attempt. While I do not ask for an answer tonight from whoever its to reply for the Government, I should be very grateful if the Treasury Ministers would look at the circumstances I have outlined.

10.0 p.m.

Mr. Diamond: In spite of what I said earlier about simplicity, I am bound to recognise that this Clause is a complex one. It covers two pages of 45 or 50 lines each, and it is necessary far us to consider it closely in order to deal with a particular tax-dodging device. It is not a satisfactory Clause in the full sense of the term.
As soon as a matter becomes really difficult, Parliament gives up its responsibility, saying "It is too difficult for us; we must leave it to the Executive." This is the second anti-tax avoidance Clause in the Bill, and it is the first of many Clauses in respect of which Parliament recognises its inability to cope with the difficulties of the situation, because of the kind of tax structure we have, and leaves things to the Executive.
We are not yet dealing with Clause 26, but on this Clause, which is very complicated, Parliament says that it shall be dealt with on whatever basis is just, leaving it to the Commissioners, the Executive, to decide what is just. We are continually forced into the position of being incapable of carrying out our proper function of legislating and deciding what we want, putting it in clear language so that our wishes can be followed. We are forced into this position constantly because of the basic anomaly of our tax structure.
When the right hon. Gentleman the Chancellor of the Exchequer introduced the Clause on the Second Reading of the Finance Bill, he was much more forthcoming than was the hon. Member for Portsmouth, Langston (Mr. Stevens), who said that the Clause arose because of the difficulty of dealing with people who transferred taxable receipts to nontaxable receipts. The Chancellor was much more forthright and said:
…these Clauses are designed to ensure that trading profits are dealt with as trading profits for tax purposes and do not escape liability by being disguised as or turned into capital gains."—[OFFICIAL REPORT, 3rd May, 1960; Vol. 622, c. 893.]
This is the second Clause dealing with tax avoidance. This is the second Clause which arises because there is the difficulty of preventing people from turning income into capital. We have this difficulty because of a tax structure under which part of money available for spending is called income and the other part of the money available for spending is called capital gains which are entirely free of tax. People are induced therefore artificially so to manipulate their affairs that that which is income would seem to be capital.
I propose, subject to catching your eye, Sir Gordon, on each Clause where we come up against this same difficulty to draw the attention of the Committee to it. I have tried persuasion by all sorts of means. I have tried prose and I have tried poetry. Whichever way I try I always seem to fail. I now propose to try to be persuasive by irritation and, when we come to the Question, "That the Clause stand part of the Bill", to draw attention to this frightful difficulty and to our inability to deal with the situation simply because we have a tax structure under which capital gains are free of tax.

Sir Kenneth Pickthorn: I agree with the remarks of the hon. Member for Gloucester (Mr. Diamond) about the undesirability of the House of Commons handing over parts of its duty in this connection to the Executive. I agree with the hon. Member for Sowerby (Mr. Houghton), who I must not call my hon. Friend, in his indignation against large evaders. I suppose that in strict morals we ought to be equally indignant against small evaders, and that would carry us a very long way indeed.
I also agree with the hon. Gentleman in his estimate, except I thought that it was perhaps generous, that in this matter nine-tenths of us are floundering in helpless obscurity. Since everyone else who has spoken on this Clause has been one of the saved 10 per cent., I have been half tempted for some time to illustrate the difficulties and, I hope, to earn the sympathy, not the contempt, of the hon. Member for Sowerby. I thought that I might illustrate the difficulties of those of us who are in the great majority. I was encouraged—I had almost given up thinking that I would be—by my hon. Friend the Member for Basingstoke (Mr. Denzil Freeth). He half asked, or more than half asked, one of the questions that I wanted to put. That encouraged me to think that perhaps it might be worth putting it.
The whole matter turns on the words in line 40 and the following two or three lines. This is the question, or something like it: are there means of knowing so much about the sea in which the sharks about which we have heard so much swim that we know that they must be in collusion with each other? Otherwise, I am not clear about the relations between company "A" and company "B". Does the seller—here we come back to the aunt from Basingstoke—always know to whom he is selling? If not, is not the effect of the Clause to put upon the seller—he may be a National Provincial nominee—a heavy tax which he can avoid only by proving something which he cannot know and which would be in the knowledge and control of the buyer but not of the seller?
If that is the fundamental effect of the Clause—and I think that it is—then I am bound to say that, so far, we have had nothing like an attempt from the Government Front Bench to explain why it is fair to put either the seller or the buyer into the position that I have endeavoured to describe.

The Solicitor-General: May I, before replying to the specific points which have been asked of me, revert again to two questions which my hon. Friend the Member for Basingstoke (Mr. Denzil Freeth) asked me when I was putting the original Amendment to this Clause to the Committee. I gave two answers "off the cuff" and said that I would check if they were accurate. I have given him

the information, but I think it only right to say, for the record, that, fortunately, on the advice that I have been given, the answers which I gave were correct.
The hon. Gentleman the Member for Sowerby (Mr. Houghton) said that he spoke from a strong emotional background. I have no objection to that so long as I am not the direct object of his emotion. I think that my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) is quite right when he says that there is great danger if indignation against manipulation of a tax code which is adjusted to ordinary straightforward trading should lead us to disregard the rights and interests of the ordinary trader who may get caught up in the net. One of the great dangers in dealing with the avoidance of taxation, as it has been practised in this and some other respects, is that ordinary transactions may be caught up in dealing with the reprehensible ones.
The hon. Member for Sowerby asked how much money had been lost in these transactions. I cannot give him an answer at all, because all of them are, of course, outside the tax net and, therefore, the information is simply not available. He asked me about the relation of Clause 26. I think that we had better postpone consideration of that until we come to it when, I have no doubt, we shall have to scrutinise it carefully.
My hon. Friend the Member for Lang-stone asked me about the phrase, "substantial part" in Clause 19 (1, b), the second limb of which states:
the trading stock…forms a substantial part of the assets…
That is a phrase which has been considered by the courts in a number of different contexts and it will be for the courts to determine what is "a substantial part". It obviously stands right away in contradistinction to an inconsiderable or immaterial part, but what is a substantial part will, of course, depend on the nature of the assets, on the nature of the work done by the company, and will vary with the size of the company and the nature of the assets.
I should like to consider whether, before another stage, it would be desirable to put a platform for what is a substantial part. On the other hand, it will still obviously leave, quite correctly, a large area of discretion for the Appeal Commissioners to decide.
10.15 p.m.
The next question raised by my hon. Friend was that of legitimate trading and ordinary amalgamations. That was also adverted to by my hon. Friend the Member for Basingstoke and my hon. Friend the Member for Carlton (Sir K. Pick-thorn). In the instance given by my hon. Friend the Member for Langstone, of a subsidiary formed for a specific purpose—say, of making a film—if when the film was nearing completion the shares in the film-making company were sold to the company that would hold the film as an investment, obviously the transaction would be caught, and rightly so, because it would be similar to the building transactions which we have considered.
On the other hand, the normal process of amalgamation and reconstruction mentioned by my hon. Friend would not be affected, because one of the tests which have to be satisfied is the test in subsection (2), that all the trading stock
belonging to the company at the time of the sale has been or will be disposed of either in the course of its trade
If that is not shown to the satisfaction of the Commissioners, it falls within the mischief of the Clause. Therefore, within the normal case of reconstruction and amalgamation, the trading stock will be taken over as trading stock by the new company and will not fall within the mischief of the Clause. Therefore, in was one of the matters which my hon. Friend the Member for Carlton also had in mind.
The hon. Member for Glasgow, Craig-ton (Mr. Millan) asked about the phrase "aggregate liabilities". I am prepared to advise the Committee that that would include contingent and unascertained liabilities. Obviously, something like a pending lawsuit or a pending claim at law against the company would be a liability of the company. That would be a difficult matter on which to put a value, but that difficulty is inherent even in the hon. Member's Amendment which was not called.
The hon. Member asked me to confirm that the goodwill is brought into account only when it is the subject of a previous sale to the sellers as affected in the Clause. That is so. Subsection (4. b) deals with the value of the goodwill

to the extent…that consideration was given therefor on a transaction between independent persons dealing at arm's length.
That was dealt with in my earlier answer to my hon. Friend the Member for Basingstoke that the value put on the goodwill in the balance sheet is immaterial.
The hon. Member then mentioned, as did his hon. Friend the Member for Gloucester (Mr. Diamond) and my hon. Friend the Member for Carlton, the phrase
such proportion as may be just.
That formula comes into effect only in the case where only part of the shares are sold and only when the shares are of different classes or have different rights. That phrase follows a well-established precedent, for example, where plant and machinery is used partly for business and partly for private purposes. The capital allowances in respect of the machinery to be given against the assessment on the business profits are such proportion of the full allowance
as may be just and reasonable.
With respect both to the hon. Member for Gloucester and to my hon. Friend, that is not handing over part of our duty to the Executive. The determination is made in the last resort by the Appeal Commissioners and not the Executive.
My hon. Friend the Member for Basingstoke asked a number of questions. He was kind enough to ask me to consider them rather than give a detailed answer at this stage, for which I am grateful, and I will do so.
There was another matter to which my hon. Friend the Member for Carlton also adverted to which I must refer, and that is the aunt from Basingstoke, as she is now known, who sells her shares in the open market, or as the result of a take-over bid. My hon. Friend asked whether the seller always knew to whom he or she was selling, and the answer is in the negative. In a number of cases, she will not know; but if the minor shareholder has had the benefit of what should have been a trading profit, it is by no means clear that the Clause ought not to affect the sale of the shares. My hon. Friend is entitled to say that it is very unfair that if his aunt is selling the 2 per cent. giving control she should be


caught, whereas someone who may have sold 49 per cent. preceding that is not caught; but I should have thought that the approach to adopt is to consider whether, by Amendments to later Clauses, the seller of the 49 per cent. in that case should not also be included. However, in response to my hon. Friend I will consider that point along with others.

Mr. Denzil Freeth: Will my hon. and learned Friend not agree that it is also unfair between the aunt—be she from Basingstoke or elsewhere—who happens to own shares in a property company which is taken over and the aunt who has shares in the bull's-eye manufacturing company which is not hit by this legislation?

The Solicitor-General: The difference is that in the property company the Clause applies only where the company is being taken over in such circumstances that the trading stock is being converted into capital appreciation.

Mr. Enoch Powell: My hon. and learned Friend will also appreciate that it is not only a question of unfairness—of any possible unfairness—but more particularly of uncertainty on the part of the seller, possibly for six years.

The Solicitor-General: I appreciate that and that is one of the matters which my right hon. Friend the Chancellor of the Exchequer and I will consider before Report.

Mr. Millan: May I raise the question of the minority shareholder whose sale of the small proportion of the shares brings the Clause into effect? I understood from Clause 22 that when there were sales of associated parcels of shares of a company sold to the same person, all the sales were taken as a whole and that the Clause with which we are now dealing would cover all the people who sold the shares. Am I to understand from what the hon. and learned Gentleman has just said that that is not so, and that those who sell the 49 per cent. will not, in fact, be covered?

The Solicitor-General: I think that we had better leave that until we reach Clause 22, but the position is as I have explained to the Committee.

Sir K. Pickthorn: What is the answer to the suggestion that we should put the tax on the buyer, who, presumably, will then take care when he buys so to arrange the purchase price as to make it fair to him? He has got the stuff and he knows what is to happen to it, because it is he who does it. There is no six years' uncertainty for him.

The Solicitor-General: I will consider that matter further, but it occurs to me that although the buyer in this type of transaction may get some advantage, it is the seller who gets the main advantage.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 20.—(PROVISIONS AS TO CERTAIN BUILDING COMPANIES NOT CARRYING ON A TRADE.)

Sir H. d'Avigdor-Goldsmid: I beg to move, in page 15, line 37, to leave out "of or include", and to insert "wholly or mainly of".

The Chairman: It may be convenient to take, with this Amendment, that in page 16, line 5, to leave out "of or include" and to insert "wholly or mainly of".

Sir H. d'Avigdor-Goldsmid: After the "sharks" which we have been discussing when dealing with Clause 19, we now have an Amendment which deals rather with the minnows, but I hope that it will be none the less acceptable for that.
The purpose of the legislation in Clauses 19 and 20 is to deal with property companies. A situation could easily arise when a company which was not in essence a property company and which was engaged in a totally different form of business went into liquidation. As Members who have experience of this know, the position often arises, towards the end of a liquidation, that the company is left with an office and very little else. The Clause now states
Where the activities of a company consist of or include the erection or the securing of the erection of a building…
In my opinion it would be manifestly unfair to treat under the penal Clauses of this Bill a company which, although it was included in its articles of association that it should be entitled to erect a building, was in fact engaged in trade with the Far East or some other totally different kind of activity and was left, through liquidation, with that building only. If the Amendment were accepted the Clause would read
Where the activities of a company consist wholly or mainly of the erection or the securing of the erection of a building…
The Amendment would in no way weaken the effect of the Clause as applied to the transactions to which it is intended to apply, but at the same time, it would prevent the Clause from applying to an innocent class which would otherwise be caught.

Mr. Barber: To appreciate the significance of this Amendment it is necessary that I should say something first of all about the purpose and ambit of the Clause. I hope that it may be for the convenience of the Committee if I make one or two general observations now instead of explaining the Clause at length when we come to any questions arising on the Question, "That the Clause stand part of the Bill". The Committee will recall that Clause 19 was concerned only with the sale of shares in a trading company.
Clause 19 refers to the case of a company carrying on
a trade of dealing in securities or land or buildings, or of developing land, or…
and then goes on to refer to trading stock. Clause 20 covers the special case of a building company—a building company only—which has its memorandum and its articles so drawn that it can, with some hope of success, contend that it is holding the building as an investment. Unless this sort of case were covered as it is by Clause 20, it would be the simplest thing in the world for any operator to avoid Clause 19, which, standing by itself would be quite useless.
I can best illustrate this by giving the example of a group of people getting together to form a company for the purpose of erecting a building. They have their memorandum and their articles so drawn that on the face of it the company can be seen to be an investment company only, because its objectives are consistent with the holding of the building as an investment and not as stock in trade. The building is then completed, and if, after perhaps two years, the company sells it at a profit, the Inland Revenue might well say in these circumstances that this was a trading venture and that any profit resulting from the sale should be subject to taxation. The company might contend that it had produced, in the erection of the building, an income yielding asset which should be treated as an investment.
It would, no doubt, say after two years that it had decided to sell the building and to put the proceeds into some other form of investment. It might say, "You have only to look at the memorandum and articles to see that we are clearly an investment company."
10.30 p.m.
So the company would go to appeal. The memorandum and articles which are drawn up in a form consistent only with an investment company would, before the Commissioners, be only one factor in these circumstances in determining whether the sale of the building was or was not a trading venture. The Appeal Commissioners might take the view that this was mere window dressing and so decide as a question of fact that the profit on the sale of the building was assessable to tax.
If one assumes the sort of case which is covered by this Clause the Committee will see that the position is very different. If one supposes that this same group of people, foreseeing that they might be liable to tax if they sold the building at a profit, decided instead to sell the shares, they would, if Clause 19 stood by itself, avoid any tax on the resulting profit arising from the sale of the shares. They would not be caught by Clause 19 because that Clause relates only to trading companies and imposes a deemed consideration for the sale of their trading stock. The result is that it would be a simple matter to avoid tax altogether unless Clause 20 is accepted by the Committee.
This Clause accordingly provides that where the activities of a company consist or include the erection or the securing of the erection of a building which forms a substantial part of its assets, the company shall be treated for the purposes of Clause 19 as trading with that building as trading stock if the company's shares—and this, I think, is an important qualification—are sold not later than six years after completion of the building. There is already provision in subsection (2) to deal with the case of a liquidation, but unless it is desired I shall not go into the details of that now.
I agree that it is necessary that there should be some restriction in the scope of this Clause to meet the sort of case where a company may have erected a building quite genuinely to hold as a fixed asset, and where the company then falls on bad times, and before the six years are up, may have virtually nothing left but the building. On the other hand my hon. Friend will agree that his

Amendment as it stands is, perhaps not quite right, in the sense that it opens up possibilities of avoidance.
To give an example. If the opening words of the Clause were amended as my hon Friend suggests they would read:
Where the activities of a company consist wholly or mainly of the erection or the securing of the erection of a building.
If one considers the case of a company whose real business was the building or the developing of property it is conceivable that the company might indulge, for example, in large-scale transactions in securities at the crucial period which has to be considered so that it could argue that those transactions were the main part of its activities. If that were so the Clause would not bite. If one pursues this further one can conceive of cases where the company in question putting up this argument might have borrowed the money to engage in these transactions. There are other possibilities with which I will not trouble the Committee.
I readily admit that there is a point which should be met, and so, while I feel I cannot advise the Committee to accept the Amendment as it stands, we will give the point further consideration with a view to introducing a suitable Amendment on Report. I hope that in these circumstances my hon. Friend will not press his Amendment.

Sir H. d'Avigdor-Goldsmid: In view of the very clear assurance from my hon. Friend that weight will be given to the point I raised, I shall certainly not try to force a form of wording once again on the Parliamentary draftsmen. I, therefore, beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Barber: I beg to move, in page 16, line 3, at the end to insert:
(2) Where before the sale of shares mentioned in the foregoing subsection the company has

(a) sold its interest in the building to the person who is the purchaser of the shares or (if that person is a company) to an associated company, or
(b) has created an interest in the building in favour of that person or any such associated company,
the foregoing subsection shall apply as if the interest sold were still vested in the first-mentioned company at the time of the sale of


the shares, or, as the case may be, as if the interest had not been created as mentioned in paragraph (b) of this subsection, and as if any assets of the company representing the consideration for the sale or creation of the interest were not assets of the company.
The purpose of the Amendment is to close a loophole which was not foreseen when the Clause was drafted. I can best explain its purpose by considering, first, the cases where trading is clearly involved which falls directly under Clause 19. If that Clause stood on its own there obviously would be a way round it by arranging for the company to sell its trading stock cheap to the prospective purchaser of the shares before he bought the shares, and then no doubt the shares would be sold at a suitably inflated price. Clause 19 in that event would not bite on that transaction because the company would not have any trading stock left at the time it sold its shares.
Under Clause 19 this problem can be met by the exercise of the powers conferred by Clause 26, but the relevant powers in that Clause refer only to trading stock and consequently that will not cover this sort of avoidance device pursued in respect of a building of a company which does not carry on a trade, because the shareholders could maintain that it was merely an investment company and had no trading stock and was therefore not within the ambit of that Clause. Therefore the loophole remains in that special case. The Amendment provides that if an interest in the building is transferred to the purchaser before he buys the shares, the Clause applies as if the interest in the building was still vested in the company at the time it sold the shares.

Mr. Mitehison: The Economic Secretary terrifies me. Here we have a very elaborate Finance Bill and between the time it was introduced and now holes have been found. We all know the Irishman's definition of a net as a number of holes with a bit of string round them. I am beginning to think that the Bill is rather like that. It has far too many holes in it. Some are being stopped up but I am alarmed as to what will happen later.
We have had a very unfortunate record with tax-avoidance Clauses. They have been introduced with sublime self-confidence by one Chancellor after another and found to be inadequate for

that purpose. I shall not anticipate, but that is one of the reasons why Clause 26 appears in the Bill. If gentlemen interested in tax avoidance have got so far and have run so much faster than the Treasury has been able to run, it is time that we considered new machinery, whether it is that in Clause 26 or consists of some of the other devices which my hon. Friends have suggested from time to time but which I should not be in order in discussing now.
I have no objection to the Amendment. I conclude by saying once more that there are far too many holes which have been discovered already to leave us with any confidence that there will not be more holes later. I am terrified by the Economic Secretary.

Amendment agreed to.

Motion made, and Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. Diamond: This is the third anti-tax avoidance Clause, and it arises from the fact that we have a tax structure under which capital gains are not taxed and, therefore, all this procedure is necessary to prevent a man turning his income into notional capital and escaping taxation. I will not detain the Committee any further.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 21.— (APPLICATION OF SS. 19 AND 20 TO SALES OF SHARES IN HOLDING COMPANIES.)

Motion made, and Question proposed, That the Clause stand part of the Bill.

Sir H. d'Avigdor-Goldsmid: I am in a slight difficulty because my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) has given me some instructions about some matters that he wished to raise but he is not here. I therefore take the opportunity of drawing the attention of my hon. Friend the Economic Secretary to the Amendment in the name of my hon. Friend, in Page 18, line 17, at the end to add a new subsection (8).
The Amendment has not been called, but it deals with a form of activity which is very much more common than all the


matters that we have been discussing, and about which the hon. Member for Gloucester (Mr. Diamond) was so eloquent, these matters of tax avoidance.

Mr. Mitchison: On a point of order. Is the hon. Baronet allowed to discuss an Amendment which has not been called on the Question, "That the Clause stand part of the Bill"?

The Deputy-Chairman: The hon. and learned Member is quite correct, but I was allowing the hon. Baronet to go a little further so that I could be certain that that was in fact what he was doing.

Sir H. d'Avigdor-Goldsmid: I am grateful to the hon. and learned Gentleman for his courteous rebuke. I will address myself to the Clause, and ask my hon. Friend the Economic Secretary to consider the effect of the Clauses that we have been discussing and this Clause on amalgamations between property companies, because on such amalgamations considerable difficulties will accrue, and great uncertainties will accrue, unless some action such as that proposed by my hon. Friend—which I know it is out of order to discuss—is considered by the Economic Secretary.

The Solicitor-General: The purpose of the Clause is to anticipate avoidance of Clauses 19 and 20. It makes special provision for cases where another company is—or indeed other companies are —interspersed between a company which would be within Clause 19 or Clause 20 and its ultimate proprietors, and the holding company shares are sold to the customer who wishes to acquire the trading company's shares. It is designed to anticipate devices aimed at the avoidance of earlier Clauses which have been approved by the Committee.
It deals with two main possibilities—the intermediate company is simply a holding company, or the intermediate company is itself a company whose trading stock the customer wants to acquire together with the trading stock of another company in which the intermediate company holds shares. That is subsection (6).
The Committee will not at this stage want me to go through the various ways in which this is worked out.

Mr. Willis: Why not?

The Solicitor-General: I am prepared to do so, but I thought I was collecting not the voices but the minds of the majority of the Committee in saying what I did.
I understand the apprehension of my hon. Friend that this Clause may stand in the way of some perfectly genuine agreements.
I would like to consider that point again before the Report stage. Obviously we must consider it carefully, so as not to provide a loophole through the Clause. On the other hand, my hon. Friend is quite right in saying that this may go too far in preventing quite reasonable and proper amalgamations. If he and the Committee are content with that assurance I would ask them to agree to the Clause.

10.45 p.m.

Mr. Diamond: The Clause is peculiarly free from Amendments, if only for the reason that it is virtually unintelligible to anybody outside the Treasury. It is the most complicated Clause of the lot, and illustrates the extent to which we have to go in order to attempt to stop up loopholes. I am glad that the Solicitor-General did not say on this occasion—as he did on a previous one when we were introducing a Clause to stop up loopholes—that this Clause was likely to stop up the loopholes. Unfortunately, in every Finance Bill we are dealing with Clauses to stop up loopholes in Clauses introduced to stop up loopholes in Clauses which were introduced to stop tax avoidance. This complicated Clause is the fourth of our anti-tax avoidance Clauses, and the fourth one which arises because we have this antiquated tax structure, under which we are driven to these enormous lengths and unsatisfactory methods of attempting, quite unsuccessfully, to deal with the tax avoider, who has the simple opportunity open to him of switching his income into capital and so avoiding taxation.
I say "unsuccessfully," because it can now be relied on that when we have a Clause of this complexity, which deals specifically and precisely with a good deal of the ground which one must not walk on lest one is caught for tax purposes, it equally shows one where one has to walk if one is to avoid tax. Wherever we have a long Clause which


sets out specifically what must not be done, to a person who reads it carefully it automatically sets out the things he can do in order to avoid tax. This will never be a satisfactory method of dealing with attempts at tax avoidance. No doubt in two or three years' time we shall have another Finance Bill dealing with the same sort of problem, unless by that time we have a sensible tax structure, including a capital gain tax.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 22.—(SUPPLEMENTARY PROVISIONS AS TO SS. 19 TO 21.)

Mr. Barber: I beg to move, in page 18, line 45, at the end to insert:
and the creation of an interest in favour of a company under a person's control, or in favour of his nominee, shall be treated as the creation of the interest in his favour.
The Amendment is really consequential to my right hon. Friend's Amendment to Clause 20, which has already been accepted by the Committee. The Committee will remember that that Amendment was designed to prevent the avoidance of the provisions of the Clause by the device of selling the company's building in anticipation of the sale of the company's shares to the same purchaser.
Subsection (3) of this Clause, as drafted, provides that:
For the purpose of this and the three foregoing sections a sale to a company under a person's control, or to his nominee, shall be treated as a sale to him.
My right hon. Friend's Amendment to Clause 20 dealt not only with the sale of an interest in the building but also with the creation of an interest in favour of an intending purchaser of the company's shares, and it is therefore necessary to extend subsection (3) in this way.

Mr. Mitchison: I say no more than this: these Clauses have ceased to be a net and have become a piece of what is known as broderie Anglaise—full of holes and embroidered by the English.

Amendment agreed to.

Motion made, and Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. Millan: This Clause is easy to understand by comparison with the Clauses which have gone before it, and on first reading I thought that it was admirably drawn, but in view of what was said in the discussion of Clause 19, it seems to me that there is a fundamental fault in this Clause, and I hope that the Government will take an opportunity at a later stage to stop up the loophole which the Clause as drafted seems to leave. The intention obviously is to prevent the manipulation of the sale of shares from reaching a position in which the provisions of Clauses 19–21 do not come into operation until about half the shares of the company have been sold. In effect, we can have the position that the sellers under Clause 19 of shares in the company have complete control of the company and yet only half the profits which they make by the manipulation under Clause 19 will be caught.
The position under this Clause seems to be that if, just prior to the point at which control passes from the seller to the purchaser, there is interposed an independent person holding only a nominal holding of shares, then the previous sales are not covered by the Clause. That is my understanding of what the Solicitor-General said on Clause 19. He said that if 49 per cent. of the shares were sold and some outside person held the 2 per cent. of shares which would give control to the purchaser, then the 49 per cent. would not be covered by Clause 19. It seems to me that on a strict reading of this Clause that will happen, although that does not seem to be the intention. We ought to have the point cleared up before we go beyond this Clause.

Mr. Barber: I am not sure that I follow that example, but if it refers to the aunt from Basingstoke about whom we heard a good deal on Clause 19, the hon. Member will recollect that my hon. and learned Friend undertook to look into that question in the hope that we might be able to take action to satisfy the aunt.

Mr. Millan: It is not a question of satisfying the aunt. That was not the point. It was not a question of the aunt holding the nominal shareholding being caught because an illegitimate profit had been made. If an innocent party is involved in the transaction there is no


reason why the innocent party should not pay tax on the profit accruing to her. The point I am making is that if, by a process of manipulation, the sale of the shares of the innocent party forms the operative sale and brings the Clause into effect, then it is wrong that the previous sales by the people who control the company, up to 49 per cent., should escape. That is the point about which we are not clear. From a close reading of the Clause it seems that the holders of the 49 per cent. of the shares in this hypothetical case might escape tax.

Sir K. Pickthorn: I should like to ask two questions to which, I think, the answers should be known. One of them I should, perhaps, have asked on Clause 19, and it applies also to Clause 23, and is the case where there may be some importance in the exact date of the sale. I do not know whether it needs special provision, or whether it is plain that the sale takes place when the contract or other commitment is entered into, and not at the moment when it is completed.
The second question concerns associated shares. I quite see that there may be ways of finding out whether there is a partnership or not, and that it is ascertainable that they are or are not partners, but how is it presumed, or known, that people are relatives, and how is it presumed, or known, that they keep each other informed of their dealings, and that, therefore, not only are they related to each other but that their shares are related to each other, too?

Mr. F. M. Bennett: I should like to put another question, not only relating to this Clause but to others as well. As the Treasury Bench knows, I am a wholehearted enthusiast for these Clauses in respect of property companies, but I am not quite clear at the moment as to what is the state of affairs if by one or other of these transactions a loss is incurred. If those concerned had two or three of these transactions in a year they might seek—but might not succeed—to set off the loss on one transaction against the profits in the others.
If challenged, could those concerned claim that they were specifically dealers either in buildings or in securities, or anything else? If so, under the existing law they would be able to gain the benefit, as dealers, of being able to set

off a loss in any one year against the profit in another. Would the Inland Revenue be able to choose to deal with them under this Clause, or might those concerned claim that it would be preferable for them to be dealt with as dealers?

Mr. Mitchison: And can the hon. and learned Gentleman say, in view of all that has been said this evening, whether it is on purpose that "related" and "relative" have been so confined as to exclude a conspiracy between an aunt and a nephew?

The Solicitor-General: Perhaps I might first answer the point put to me—I disregard entirely, I may say, the point put by the hon. and learned Gentleman the Member for Kettering (Mr. Mitchison)—by my hon. Friend the Member for Carlton (Sir K. Pickthorn), who has drawn attention to the date. I think that he is absolutely right. There is ambiguity as to what is the effective date, and we will put down an Amendment to clear up the matter before Report. I am grateful to him. My hon. Friend also asked about the associated persons. It is, of course, a matter to be proved that the people are related in blood in the way mentioned or, indeed, that they are associated in the various other ways set out in the Clause.
I am not quite sure that I followed the point about losses put to me by my hon. Friend the Member for Torquay (Mr. F. M. Bennett) but I shall, in any event, try to look into that further. If there is a general loss on the transaction as a result of the sum that is carried out under subsections (3), (4) and (5) of Clause 19, there is, of course, nothing to be taxed. It is only the profit that would accrue on the sale of the trading stock the deemed profit as allocated to the parcel of shares sold that would be the subject of taxation. If he is asking about a person who makes a practice of this particular kind of tax avoidance and continues doing it in spite of the Clause—a very unfortunate possibility to envisage—then, presumably, that person would be able to set off profits against losses. But I think I should like to consider that case further.
11.0 p.m.
The hon. Member for Glasgow, Craigton (Mr. Millan) asked about the case where 49 per cent. of the shares are sold


—I give the extreme case for the sake of argument and clarity—followed by a sale of 2 per cent. by the aunt of my hon. Friend the Member for Basingstoke (Mr. Denzil Freeth), in all innocence, followed by the sale of another 49 per cent. There are two possibilities here. The first is where the sale of the first 49 per cent. is by A, the sale of the 2 per cent. is by B, and the sale of the second 49 per cent. is by C. In that case, it is the 2 per cent. and the second 49 per cent. which will be caught by the Bill as drawn, but not the first 49 per cent. That was the case into which I promised to look.
What I think the hon. Member was putting to me was a manipulated transaction whereby the first 49 per cent. is really sold by C or his nominee. In that case, he is caught. He is caught as to the 98 per cent. because when there are sales of associated parcels of shares
being sales to the same person … and in consequence of any of the sales other than the first that person obtains control of the company, then for the purposes of any of the three foregoing sections any sales earlier than that in consequence of which he obtains control shall he treated as having all taken place at the time of that sale".
Further, by subsection (2),
For the purposes of the foregoing subsection parcels of shares shall be treated as associated if (either directly or through a nominee) they belong respectively to the same person"—
and so on. By subsection (3) it is provided:
For the purposes of this and the three foregoing sections a sale to a company under a person's control, or to his nominee, shall be treated as a sale to him".
Again, I shall look into it further, but I read that as bringing in the case where there is a sale of the 49 per cent. which is a sale either by the person who sold the last 49 per cent. or his nominee.

Mr. Millan: I appreciate the point which the hon. and learned Gentleman has made, but the Clause as drafted reads:
… in consequence of any of the sales"—
the associated sales—
other than the first that person obtains control of the company. …
Let us take a case where 49 per cent. belonging to A is sold. Then 2 per cent. belonging to an outsider is sold, and

subsequently 49 per cent. also belonging to A is sold. The transaction by which the person obtains control of the company is not one of the associated sales but the non-associated sale. Therefore, the first 49 per cent. is out, on the strict interpretation of the Clause, and these provisions would not come in. I know that the intention was that the first 49 per cent. in this hypothetical case should come in, but I respectfully submit that the Clause as drafted does not, in the kind of case we have discussed, bring in the first 49 per cent.

Sir K. Pickthorn: I am sorry to go on about this, but is this device about association something of which Government Departments and courts of law have experience, or is it new here? Would it really be necessary for me whenever—it does not happen often—I buy or sell shares to inform all my grandchildren in order to be quite sure that we are not unwittingly turning into an association? Is it known how the thing works? How does authority watch it work?

The Solicitor-General: In reply to the point put by the hon. Member for Glasgow, Craigton (Mr. Millan), there is obviously a doubt, into which, as I have said, we will look before the next stage. In reply to my hon. Friend the Member for Carlton the tax law is used to the conception of associated transactions. I do not think these is any real danger in cases of this sort. In the nature of things, their number is comparatively small and they have to take place on a fairly big scale. I do not regard the extreme case that was put to me by my hon. Friend the Member for Basingstoke and which I thought it right to consider precisely because it was extreme, as likely to be met in practice.

Mr. Diamond: The hon. and learned Gentleman said that he would be good enough to look into the question of date in the Clause. At the same time, I should like him to be kind enough to consider the date as it affects the previous four Clauses. They all have a period of six years. As the hon. and learned Gentleman knows, we are shortly coming to a Clause in which we have made a time limit of six years and in which it is now realised that six years is not by any means a sufficient


bar to prevent people from undertaking a transaction in which they will get something for nothing. It is not surprising that it is not a sufficient bar, because to wait for a considerable sum of money—a small fortune—for six years is well worth doing. In these cases, small fortunes are involved in escaping liability to tax on substantial transactions.
It may be that on further consideration the hon. and learned Gentleman will come to the conclusion that it is better to anticipate the action which he might otherwise be compelled to take in five years' time as we are dealing, as we are about to do, with dividend stripping, and to provide for a longer and sufficient period at the same time. I hope that the Solicitor-General will consider this.
Having dealt with the four preceding Clauses, we are now saying goodbye to the series of five Clauses which deal with the difficulties of preventing tax avoidance by people who transfer income into capital. This fifth Clause deals with the difficulties which arise from not having a proper tax structure under which capital gains as well as income are taxed.

Mr. Houghton: I do not want to prolong the strain on the Solicitor-General. I merely give him notice of something to which I hope to get an answer in the course of further debate. The hon. and learned Gentleman has referred several times to the fact that certain people, in certain circumstances, will be caught by the Clause. Who will catch them, and how will they be caught? Unless there is the structure of administration behind all this, it will be a dead letter from the word "go".
It is not clear how it will all come to light, how the information will be obtained or whence it will be got. This is an elaborate network of legislative safeguards which it will be by no means easy to put into practice. I press the hon. and learned Gentleman no further now. If his right hon. Friend the Chancellor of the Exchequer is to be entertained by the inspectors of taxes on Friday, it will be interesting to know what he will tell them. Will he tell them

that he is bringing them a lot more work, more staff, more pay, or what? I am sure they will want to know.

Mr. William Ross: I have been interested in the question of association. Subsection (2) states:
For the purposes of the foregoing subsection parcels of shares shall be treated as associated if…they belong respectively to the same person or two or more related persons".
The first thing that comes to mind is the question of what is meant by "related persons", and on reading this very tidy piece of draftsmanship we find exactly what is means—and there are some startling words and I want to know the reason for them. The Clause says:
two or more persons shall be deemed to be related—
strangely enough—
if each of them, as respects each of the others, is a relative (that is to say an ancestor, lineal descendent, brother or sister) …
So that we are told that if two people are brother and sister they are related. I am sure that without this piece of legislation no one would have come to that conclusion or been able to prove it. We go on, after a very important comma,
or the husband or wife of a relative, of that other or of the husband or wife of that other.
Exactly who is included and who is left out? Would it not be better to have a special Schedule in which we had a series of family trees drawn and in which we printed in black ink those deemed to be relatives and in red ink those deemed not to be relatives for some reason or other? 
Another question is whether an ex-wife comes into the matter. There may well be business associations in which people who had been married still have continuing interests and might be considered still to have a certain relationship. Has that thought entered the Treasury's mind, and if not, will the Treasury start thinking about it and give us, if not now then later, the benefit of its cogitations?

Mr. Barber: I have listened with interest to the hon. Member for Kilmarnock (Mr. Ross). I point out that an ex-wife is almost at arm's length and, consequently, would not be included within the definition of a relative for these purposes. I cannot explain more clearly than is explained in the subsection what is meant by "relative"


beyond assuring the hon. Member, as I have already done, that an ex-wife is not included.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 23.—(TRANSACTIONS BETWEEN ASSOCIATED DEALING COMPANIES AND OTHER COMPANIES.)

Sir H. d'Avigdor-Goldsmid: I beg to move, in page 19, line 5, after "company", to insert:
other than securities which are offered for sale to the public by the dealing company and acquired by the first-mentioned company on the same terms and conditions as the public".

The Deputy-Chairman: It may be convenient with this to discuss the Amendment in page 19, line 7, after "asset", insert:
other than securities to be offered for sale to the public".

Sir H. d'Avigdor-Goldsmid: I should, first, make it clear that we have now left the realm of metaphysics in which we have been dwelling on the last four or five Clauses and we now deal with something which is intelligible to all hon. Members. I also see from the distinguished array on the Front Benches that this is a topic which occupies the best brains on both sides of the Committee.
When my right hon. Friend moved the Second Reading of the Finance Bill he referred to Clause 23 as being
…designed to ensure that profits which would ordinarily have been liable to tax do not escape tax as a result of purely artificial manipulations within a group of dealing and investment companies."—[OFFICIAL REPORT, 3rd May, 1960; Vol. 622, c. 893–4.]
Clause 23 is an implementation of that wish.
In its present form, I am afraid that the Clause has a weakness in that, to use a phrase which I used last year, it throws out the baby with the bath water.
In fact, although Clause 23 is designed to cope with the situation which I have referred to already as "shunting", when associated companies which include a dealing company and an investment company move shares between them in such a way as to lessen their tax liability,

that also can cover a large number of entirely innocent transactions. I will try to develop that point.
11.15 p.m.
Let us start on the basis that the dealing company is a company which can offset capital losses and, therefore, is in a position if it incurs a capital loss to put that against other earnings. On the other hand, an investment company, which by definition has the holding of investments as its fixed assets, cannot distribute capital profits from the realisation of its investments. The basic assumption, consequently, is that the company which controls those activities moves an investment on which it expects to see a capital profit from the dealing company to the investment company so that, when the appreciation does come, it is realised free of tax to the investment company. At the same time, it is also able to move an investment which it sees is liable to depreciate in value, from an investment company which is unable to claim compensation if it suffers loss, to a dealing company. The dealing company can claim.
Of course, if everything went on in water-tight compartments in that fashion there would be nothing to do but applaud this Clause which stops up the loopholes. But it puts the issuing house, which is an essential part of the structure of the City and which now has an almost more important part to play than ever before, in a very unfortunate position. There is no definition in the Bill of the words "associated company," but from the Income Tax Act of 1952, Section 469, one learns that transactions between associated companies are when
the buyer is a body of persons over whom the seller has control or the seller is a body of persons over whom the buyer has control or both the seller and the buyer are bodies of persons and some other person has control over both of them.
I hope the Committee will notice the word "control." It does not mean that the beneficial interest is the same in all three cases and the transaction caught by this Clause—and which this amendment is designed to meet—is as follows.
If an issuing house, which has an associated company which is an investment company, makes the issue of a share to the public, it prejudices its own investment company, which it controls, from buying those shares; because,


under this Clause, if an issuing house sells those shares to the public and in part to its own investment company, that investment company will be caught for a special capital gains tax if it subsequently realises the shares at a profit.
Consequently, we get the anomalous position that Lazard's, for example, would, in making a public issue, prejudice its own investment company if it allowed the issue to be made to the public. On the other hand, if the issue were in the hands of Messrs. Morgan, Grenfell, Lazard's investment company could participate and no tax liability would thereby be incurred.
This is really not a proposition we can accept. It really makes nonsense of what we are trying to do to clarify and make sense of this body of legislation, and that is why my hon. Friends and I put down these two Amendments, which seem to me to clarify the position. They seem to me to be right in equity. It cannot be right in equity that an investment company is prejudiced by reason of the fact that the shares it buys are shares which are sold to it by its own associated issuing company.
This Clause has as its object the prevention of manipulations. In public issues, in which large issuing houses take part, the word "manipulations" really has no place. This is a public issue. It is for the public to subscribe or not as they think fit. Presumably, the issuing house undertakes the issue only if they consider that it is money's worth, that it is probably going to be a success. With that idea, they would normally expect their own investment associate companies to participate in the issue.
We have had troubles here with people wearing two coats and trying to act in two capacities at once, but it is really quite incompatible, with all our ideas of common sense, that we should now create a new situation where a prudent manager of an investment trust could not purchase a share merely because in his other capacity as a prudent manager of an issuing house, he was issuing it himself.
That is the position we are faced with unless these Amendments, or some others on the lines of these, are accepted. I do not want to make heavy weather of this, but I stress most earnestly that com-

panies do this and ought not to be prejudiced. This is a matter which every Member of the Committee should understand, and we really would not like the Clause to go through in its present form.

Sir E. Boyle: My hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) has moved the Amendment in a very reasonable speech indeed, and I should like to make it clear at the outset of my remarks, which, I am afraid, will have to be a little more lengthy than I could have wished at this hour of the night, that we certainly think that this point he has raised is serious, and that this is an important Clause to which we should certainly give close attention. I myself saw a deputation from the Issuing Houses Association a day or two ago.
I think it is important to remember just exactly what the object of this Clause is and just exactly what is done by subsection (1), what are the points which have been raised by my hon. Friend, and just exactly where the problem lies in trying to meet them.
As I think the Committee will realise —and I agree with my hon. Friend that the Clause is a little less metaphysical than some of those we have been considering tonight—the Clause is designed to deal with cases where a dealing company and an investment company are under the same control, so that it is open to the controllers to pick out shares, as it were, owned by the dealing company which they expect, with their special knowledge, to appreciate in value, and put them in the hands of the investment holding company, when any appreciation in their value realised on their sale will not be taxable. That is a point made by my right hon. Friend in his Budget speech. I think it is realised that there is a perfectly genuine problem here. It is only right that we should deal with that in a Clause dealing with tax avoidance.
Subsection (1) of the Clause imposes a charge to tax on, among other things, any profit made by an investment company or other non-dealing company on disposing of assets it had acquired from the trading stock of an associated dealing company. The first of my hon. Friend's Amendments seeks to exempt from this charge profits made by a non-dealing company, normally an investment company, on realising securities


which it had acquired from an associated dealing company on the occasion of an offer for sale to the public by the dealing company, provided it had acquired the securities on the same terms and conditions as the general public.
As I understand the points made by the Issuing Houses Association, first of all it says that the Clause will apply where an investment company associated with an issuing house participates on the same terms as the public in a public issue by the issuing house, if the investment company sells the shares so acquired. Secondly, the Association has also made the point that the Clause ought not to apply where an investment company participates in the placing of shares by the associated dealing company. That is what my hon. Friend the Member for Walsall, South had in mind when he made the comparison between Lazards and Morgan Grenfells being concerned.
Where an investment company is merely participating in a placing, the issuing house can put investments in its way, the profits on the sale being taxable when the issuing house itself took them up but escaping if taken up by the associated investment company. There is however something to be said for excluding purchases made by the investment company where there is a public issue and it takes its chance in the issue on the same basis as the ordinary public. Where this happens the investment company can claim to be investing in the same way as if it had taken up shares in any other public issue.
My hon. Friend, in his very moderate speech, was considering the case where the investment company takes up shares in a new issue offered for sale to the public by way of ordinary Press advertisement. As the Amendment is drafted, it is rather wide and would allow for a number of other possibilities as well. It seems, for example, that it would cover a case where an issuing house sends out a private invitation not to all the public but to some members of the public to take up shares which it held in a private company. That is not a case that my hon. Friend was considering but it is a case that would be covered by the Amendment as drafted. Again there is the case where a dealing company chose to dispose of a block of

shares that it had held for some time by way of an offer for sale to the public.
The Amendment as drafted contains no safeguard against the possibility that a dealing company wishing to transfer investments to its associated investment company might want to dress up the transaction as being an offer for public sale. I agree that it is a fair point that we must be careful here in tackling this possibility of avoidance not to make the terms of the Clause such as to cover certain legitimate transactions. On the other hand, we must be careful the other way to see that it would not be possible for a dealing company simply to dress up the transaction as being an offer for public sale when in fact that was not the true state of affairs.
All I can say this evening to my hon. Friend on the first Amendment is that I agree that we should certainly consider the possibility of a let-out for a genuine participation by an investment company in an offer for sale of a new issue by its associated dealing company; but we must examine more closely the form any such let-out should take.
11.30 p.m.
I give my hon. Friend an assurance that we will most certainly seriously consider the possibility of introducing a suitable Government Amendment on this point when we get to the Report stage of the Bill.
If the patience of the Committee will allow, I must now go to the second Amendment, because my hon. Friend saw this as a sort of corollary to the earlier Amendments, and in the course of the representations that have been made by the Issuing Houses Association, complaint was made that the Clause prevented an investment company wishing to dispose of a block of shares to the public from doing this through its associated issuing house. That is not a true description of the position. What the Clause does is to make the non-dealing company subject to tax on any profit it derives from the transfer of the shares to its associated issuing house.
I have no doubt it has been urged already, and it will be urged again, that it is common for a financial group acting in the normal course of City business to "nurse" a family-owned company by taking up capital in that company, and such a case was pointed out to me when


I received a deputation from the Issuing Houses Association. These shares are often taken up by an investment company in the group, and when the public quotation is made the investment company holding is sold to the dealing company in the group engaged in issue business. Indeed, it may be essential for the dealing company to take over the investment company's holding so that it may have a large enough block of shares to offer to the public.
If the issue were made through a dealing company not associated with the group, the investment company would realise its profits tax free, and it is particularly anomalous to impose a charge to tax where the issue was made through the associated dealing company since the family company has only acted in the most natural way possible by going to the associated dealing company to arrange the public flotation.
Once the general proposition is accepted that an investment company should be liable on profits it makes out of selling assets to the associated dealing company, it seems rather difficult to see whether there is sufficient ground for exempting this type of transaction, because it seems clear that in any such case the shares will have been put into the investment trust to hold while they appreciate, and if they had been held by a dealing company the appreciation would attract tax when realised.
It is difficult to see any sufficient reason why in this type of case the group should continue to be able to realise the appreciation from all tax simply by putting shares into the investment trust. That is why at first sight I feel rather less sympathetic to the second of the two Amendments.
I suggest to my hon. Friend that here we have an important Clause, with important considerations involved, and I think that there is a real case on the first Amendment. We must look carefully at the drafting of this before we put down an Amendment ourselves on Report. From what I have said I hope that my hon. Friend will accept that we are looking carefully at the Clause and its effects on normal City business. With that explanation I hope that he will be ready to withdraw the Amendment.

Mr. Powell: I welcome the way in which the Financial Secretary has responded to the point contained in the first Amendment. When he is examining this to consider how effect can best be given to this point, I ask him to take into consideration at the same time the cognate case of the associated investment company underwriting part of the issue of the associated dealing company. There is, I think, no difference in principle between the two cases, and perhaps my hon. Friend will consider them in conjunction with one another.

Mr. Mitchison: I rise to ask the Government to consider the form in which the Clause should be redrafted. It is very unsatisfactory at present. There is no definition of "associated company", and the Section of the 1952 Act to which the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) referred does not contain the word "associated" except in the head-note. Therefore, one is left entirely at large as to what "associated company" means. There should be a definition in cases like this.
Secondly, on the question of a dealing company, one finds in Clause 40—the definition Clause at the end of this Part of the Bill:
dealing company' means a company dealing in securities, land or buildings".
Through the whole discussion tonight we have not heard a word about land or buildings, and if it is not intended to deal with land or buildings it would be better that they should be left out—and then we shall probably seek to put them in again. I hope that that side of the matter will be considered as well as the purely investment and issue house side to which the hon. Member for Walsall, South referred.
There is one other matter which occurs to me, and which I think has occurred to the Economic Secretary. Lately there has been trouble about placing securities in London. It ought not to be possible for an issuing house or brokers acting in that sort of capacity to place shares with some investment company with which they are associated, when the placing is done on rather special terms and it is pretty common knowledge that those shares are likely to increase in value. I am not objecting to the value of the shares increasing, but there should


not be any tax advantages gained as a result of the transaction. I think the Economic Secretary had this point in mind in what he said in relation to the second of the Amendments we have been discussing. We must wait to see what the Government produce, but we shall look at it closely, and we earnestly hope that it will be clearer and better defined than the Clause is at present.

Mr. Denzil Freeth: When my hon. Friend considers the position of placings through the Stock Exchange in relation to the Amendment he will probably try to see if it is possible so to frame an Amendment as to provide that the companies associated—however defined—with the dealing company shall be able to secure, without contingent tax liability, shares in a placing, provided that in aggregate they do not thereafter possess more than a given percentage of the total number of shares, or the total number of shares at that moment being placed.
This is not the time of night to discuss with the hon. and learned Member the pros and cons of the method of the Stock Exchange in placing shares—and I am a stockbroker and have certain views on the subject—but we must pay attention not only to the Amendment which my hon. Friend seems to have accepted in principle but also to the two cognate matters of placings and underwriting.

Mr. Mitchison: I must apologise to the Committee for having omitted to notice that there is a definition of "associated companies" in Clause 40 (1) of the Bill.

Sir E. Boyle: I was going to draw the hon. and learned Member's attention to that point if he had not risen.
I will take into account the points which have been raised, in particular the point raised by my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell), when we are looking at the Clause and considering what Amendment may be needed on Report.

Sir H. d'Avigdor-Goldsmid: I cannot do better than accept the invitation of the Financial Secretary, couched in such friendly terms. I would only say that I hope that the Government draftsmen will be able to insert a better word for "public" than "public." I un-

fortunately used the word "public," which does not mean "public."
I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Sir E. Boyle: I beg to move, in page 19, line 25, at the end to insert:
(3) Where a company, not being a dealing company. acquires as mentioned in paragraph (a) of subsection (1) of this section any assets being shares in or debentures of a body corporate, or by virtue of subsection (2) of this section falls to be treated as if it had so acquired any such assets, and shares in or debentures of the same or any other body corporate are issued, or any night to acquire any such shares or debenture is granted, to the company as the holder of the first mentioned shares or debentures, the company shall be treated for the purposes of the said paragraph (a) as if it had acquired the shares or debentures so issued, or the right granted, from an associated company being a dealing company.
In this subsection the reference to an issue being made or right being granted to the company as the holder of shares or debentures shall be taken to include any case in which an issue or grant is made to the company as having been the holder of those shares or debentures, or is made to it in pursuance of an offer or invitation made to it as being or having been the holder of those shares or debentures, or of an offer or invitation in connection with which any preference is given to it as being or having been the holder thereof.
This is a rather technical point which I can explain briefly. This Clause imposes a charge to tax on any profit made by a non-dealing company on disposing of assets which that company acquired from the trading stock of an associated dealing company. The reference in subsection (1) to the disposal of assets so acquired would not cover the case where, for example, the assets in question were shares acquired from an associated company whose trade was dealing in securities, there was a bonus issue after the shares were acquired from the dealing company, and the non-dealing company disposed of the bonus shares.
Similarly, it would not cover the case where there was a rights issue after the acquisition of the shares and the non-dealing company sold its rights. The proposed new subsection accordingly provides that the acquisition of any such bonus shares or of rights should be treated as if it had been the acquisition of an asset from the dealing company.
I hope that the Committee agrees that if we are to have the Clause, this is a gap in the original draft which clearly must be filled.

Amendment agreed to.

Motion made, and Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. Powell: I wish to put to my hon. and learned Friend the possibility, as it appears to me, that under the Clause there may be double taxation of the same profit. I apprehend that it might arise in the following way. The dealing company might sell assets to its associated non-dealing company at less than the market price. If that happens, then apparently the transaction would be caught by Section 469 (1) of the 1952 Act, which reads,
in computing the income, profits or losses of the seller
—that would be the dealing company—
for income tax and profits tax purposes, the like consequences shall ensue as would have ensued
if the assets had been sold for open market value. Later the non-dealing company sells the assets and the whole of the difference between the artificially low purchase price and the selling price is treated as income and is brought into tax. If that is so, then the difference between the market value and the sub-market value has been taxed twice over, once in the hands of the dealing company and again in the hands of the non-dealing company. Perhaps my hon. and learned Friend will resolve this doubt.

Mr. Millan: I should like to raise two points on the Clause. The first is simple. Under subsection (4) there is special provision for "an investment company in liquidation". It is not very clear why this special provision is restricted to an investment company. This is the first time in the Clause that the phrase "investment company" is used, and I think that for consistency with the rest of the Clause the expression ought to have been
a company not being a dealing company".
There may be a special reason why this restriction has been placed under subsection (4), but I think that the Com-

mittee ought to be given an explanation of it.
The second point which I want to raise is similar to that raised by the hon. Member for Wolverhampton, South-West (Mr. Powell), only from the opposite point of view. I think there is a flaw in the Clause which will permit a profit which is intended to be caught by the Clause in fact to escape taxation. It arises from the conception of the term "profit" in line 9. So far as we are dealing with transactions under subsection (1, a), then the question of what a profit is can easily be ascertained, because if the company which has acquired the asset has paid a certain price for it but subsequently sells the asset, presumably the profit is simply the difference between what it has paid for it and the selling price.
11.45 p.m.
When we come to paragraph (b), the word "profit" is by no means so clear. Let us suppose that an investment company disposes of a security to an associated company—a dealing company. Suppose the investment company sells the security at an inflated price. In that case, any profit that the investment company makes on the artificially-manipulated transaction is capital profit and not subject to taxation, but the dealing company can sell the security at its true market value, thus making a loss which is allowable to it as a taxation deduction. That, presumably, is one of the transactions that (b) is meant to catch.
I think that there is a flaw in the use of the word "profit." One might have an artificial transaction of that sort in which the investment company selling the security, even at an inflated price, does not make a profit at all. If an investment company bought a security at a price of £100 and the market price of the security went to £80, it would still be possible for the investment company to sell the security to a dealing company at the inflated artificial price of £100 and not, under the Clause, make a profit at all.
Nevertheless, the manipulation is still there. It is still a sale at an inflated price, and would still allow the dealing company to resell the security at its true market value at a loss which would be allowable for taxation purposes. Therefore, in the type of transaction I have just illustrated the real concept of profit should be the difference between the


price at which the security has been sold and the true market value, and not necessarily the original cost price to the company selling the asset, because that cost price may no longer be relevant in the circumstances at the time when the sale takes place.
This could be a serious fault in drafting, because it is something that could be manipulated, as a matter of course, between an associated investment company and a dealing company. It would be possible for an investment company that suffered a reduction in the market value of its investments to sell all those investments, as a matter of course, at inflated prices—at the original cost price to the investment company—to the dealing company, thereby passing off what ought to be a capital loss to the dealing company and making it a revenue loss for that company.
The Financial Secretary may have noticed that we had an Amendment which would have defined "profit" in such a way as to catch that type of transaction, but it has not been called. This is not merely a technical point, but a point of substance. I think that there is a flaw in the drafting, and I hope that before the Bill is eventually passed, the Government will look at this matter.

Mr. John Hobson: Another point concerns the purely genuine transaction which seems to be caught by the present provisions of the Clause although there has not been any form of artificial manipulation. Let me postulate the case of a parent company that is a dealing company and has one or more wholly owned investment trust subsidiary companies. Those companies treat their capital as fixed assets, and by the very terms of their articles of incorporation they are prohibited from distributing any capital profits at all to their shareholders by way of dividends.
Moreover, the company cannot deal as such because, if it turns over more than about 25 per cent. of its shares in any one year, it will be treated as a dealing company and not as an investment company. In the example I have in mind, one of the subsidiary companies never in any one year turns over more than 2 per cent. of its total capital. But it does throughout the year acquire from time to time from the dealing company

certain assets. They are always transferred at the proper market price, and even if they were not, the dealing company could, of course, under Section 469, have the position rectified for tax purposes as though the transaction had been at the proper market price.
It seems to me that it would be perfectly possible, if the Clause as drafted is to be avoided, for a transaction merely to be put through jobbers and brokers. This is really the brokers' and jobbers' endowment Clause. If an investment trust company were to buy exactly the same shares on the market at the market price, it would, of course, pay the Stamp Duty, as it does now in any event, but it would have to pay the broker's and jobber's fee, but tax would then not be attracted if the shares it acquired appreciated and it subsequently disposed of them at a profit. But if it were to acquire direct, without the intervention of a jobber and broker—and their fees—an investment from the dealing company, it would be liable to pay tax in the future if it were to dispose of it at an appreciated price at any time.
The consequence is that, first of all, one is differentiating for the very first time between different sorts of assets of an investment trust company according to the source from which they are acquired. If the asset is acquired from the parent dealing company, tax is attracted if the company sells it subsequently at an appreciated price. If it acquires it from any other source at all, even though there is an appreciation, however great, it does not pay tax, though it may be exactly the same sort of investment at the same price.
Moreover, the investment trust company becomes liable to tax on its fixed assets, on which it has never previously been liable for tax. It becomes liable for tax even though the transaction may be perfectly genuine and there is a perfectly genuine appreciation. Further, it does not have any power to set off any losses. Let us suppose that several investments are acquired from the parent dealing company. Some go up and some go down. It pays tax on the appreciated price of those which go up and it has no off-set at all in respect of those investments it acquires which go down.
It seems to me that this is a novel and unusual departure from the position


of investment trust companies hitherto, and I should be very much obliged if my hon. Friend could say whether he has considered this point, whether anything can be done on Report, and, in particular, whether it would be possible, for instance, to draw a provision under which tax would never be attracted where the associated companies deal only in one direction.
In the example I have in mind, the investment company acquires assets from the dealing company, but the reverse is never true. Each is, in fact, performing its proper function: the dealing company is selling, paying tax on its assets which it disposes of as part of its trading stock, and the investment company keeps its investments and, if it sells, it sells them in the open market and never back to the dealing company. Therefore, it would seem proper, in the circumstances, if two associated companies, one of which is a dealing company and the other of which is an investment company, transfer their assets only from the dealing company to the investment company, that that might be a case for excluding the attraction of tax under Clause 23.
Alternatively, would it be possible to put in some date so that if the investment company kept the asset acquired for a period of three years, or longer, if necessary, to show that it genuinely was acquiring the asset as an investment, it would not, merely because it had acquired it from a parent company, pay tax, remembering that it would never had attracted tax if it have bought on the market from a broker or jobber?

Mr. Denzil Freeth: I should like to take up a point made by my hon. and learned Friend the Member for Warwick and Leamington (Mr. Hobson) concerning the meaning of "disposes of an asset". If the dealing company sold through the Stock Exchange the shares to the non-dealing company, would that be regarded as disposing of the assets to the associated company? If each company used a different broker or if they used the same broker but put the shares in question in the name of the broker of the nominee company so that the names of the two associated companies did not appear on the same transfer, would those transactions be regarded

as disposing of an asset to an associated company? It is important to consider these matters, otherwise within a short time it will be found that a method has been devised to avoid the operation of the Clause.
I support my hon. and learned Friend's criticism that the Clause taxes capital appreciation and makes no allowance for any losses to be offset against the capital appreciation. There must be few occasions in our tax law when a business cannot offset losses against its profits. I shall be grateful if my hon. Friend the Financial Secretary will consider this. It is one thing for the Inland Revenue to be properly protected. It is quite another matter for the Inland Revenue to be in the position of saying "Heads I win, tails you lose".
Should there not be some kind of time limit beyond which the transferred asset ceases to be taxable in regard to profits? We are holding a sword of Damocles over the head of the company irrespective of any time limit, even unto liquidation should that occur a hundred years from now.

Mr. Mitchison: Is the hon. Member not now speaking to an Amendment which was not selected, in Clause 23, page 19, line 5, at end insert
within five years of the acquisition"?

Mr. Freeth: I am asking my hon. Friend to look at the Clause in relation to the situation which I am postulating and to consider whether it might not be necessary to improve the Clause. This is a method which even the hon. and learned Member for Kettering (Mr. Mitchison) has from time to time used, because he, too, has suggested that certain Clauses in Finance Bills might be improved.

Mr. Harold Wilson: We all want to make progress on the Bill. Is it not a fact, Sir Gordon, that we are debating what is in the Clause, and not what is not in it?

The Chairman: That, of course, is the situation.

Mr. Freeth: I am sorry if I was out of order, Sir Gordon. I was trying to portray to the Committee that the situation that will exist under the Clause was not wholly satisfactory. The fact that there


is no time limit, which means that the sword of Damocles hangs for ever, even until liquidation, because the word "subsequently" is in the Clause, seems to me somewhat unsatisfactory.

Mr. H. Wilson: The hon. Member can vote against it.

Mr. Freeth: I should like, frankly, to raise with my hon. Friend the Financial Secretary the fact that the Clause appears to tax any capital appreciation which may occur subsequent to the associated company acquiring the asset, even though that associated company is not in any way connected with the operation of the company whose shares it acquires from the original dealing company. It seems to me a slightly unfair method of taxation to tax in this way. Section 469 of the 1952 Act makes a taxation collection on the original sale. Here we appear to be allowing the taxation to overhang and not only to overhang, but the tax liability to increase if inflation occurs, or if the shares in question appreciate in value. I would be grateful to my hon. Friend if he would consider both those cases.

12 m.

Sir J. Barlow: I have two small points to mention, one following on what my hon. Friend the Member for Basingstoke (Mr. Denzil Freeth) said about a time limit, which is very important but which I will not discuss further now.
The other is the possibly unexpected effect of subsection (3). It is very often the custom in developing mines and minerals for a mining finance house or a large company interested in that kind of work to set up a small company to develop a particular mine or a new mineral interest. It sets up that small company with very small capital and lends it money to work the soil and get on with the job. If it is a success, then the concern is developed in the usual way. If it is not a success—and a great many are not—the loss is usually set against the profits of the mining finance house and can obviously be set off against profits.
However, it seems that subsection (3) prevents those losses, which are genuine losses in development, from being set off against the revenue of the parent company. I hope that the Financial Secretary to the Treasury will look into the matter, as I do not think that the Government meant this to happen.

Sir E. Boyle: I will, of course, consider all the points which have been raised by hon. Members in connection with this Clause. I would like very briefly to reply to three specific points raised by my hon. Friend the Member for Basingstoke (Mr. Denzil Freeth). He asked what constituted disposal of a share. The answer is that for the purposes of the Clause, a sale on the Stock Exchange, if the share is sold through a jobber, is disposal of the share. It is the disposal which is the criterion.
The hon. Member for Glasgow, Craigton (Mr. Millan) asked about subsection (4). Incidentally, he referred to his own Amendment which would have had a much greater wrecking effect than he realised, had it met with your approval, Sir Gordon, and been selected. To reply to what he said about subsection (4), the Clause says that if an investment company is put into liquidation, the liquidator should be chargeable to tax in respect of any transaction within the purview of the Clause.
That is to prevent tax avoidance, because an investment company could otherwise possibly be set up with this one object in mind and conveniently be liquidated for the occasion of the profit and realisation of assets acquired from its dealing associate. The subsection is confined to investment companies because it is hardly likely that such a deliberate avoidance device would be adopted in relation to an ordinary trading or manufacturing company. It is for that reason alone that that part of the Clause is restricted to investment holding companies.
My hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) raised an important point about the chances of a possible double charge. If I may say so with respect, he got that point absolutely right. It is true that if a sale from a non-dealing company to a dealing associate was at a figure in excess of market price, the non-dealing company would be subject to tax under Clause 23 on any profit which it made from the deal but, in principle, at any rate, Section 469 (2) of the 1952 Act would also apply, so that the liability of the dealing company might in theory fall to be computed on the basis which would have applied if the purchase price had been the arm's length price


negotiated between two independent persons. However, I can tell my hon. Friend that Section 469, as I am sure he is aware, does not apply unless the Commissioners of Inland Revenue so direct, and I can assure my hon. Friend that the Section is not in practice applied if the amount of the tax involved is very small.
Having replied to those three points, I assure hon. Members that my right hon. Friend will take careful note of all the other matters which have been raised and I hope that in those circumstances the Committee will agree to the Clause.

Mr. Diamond: My hon. Friend the Member for Glasgow, Craigton (Mr. Millan) raised a very substantial matter when he dealt with the question of profit. I can deal with his point very shortly. The Clause deals with profit, but it does not deal with the absence of loss. Profit is one thing; absence of loss is an equivalent thing, but the Clause deals only with profit. There is a method which is quite easily available for including absence of loss in this part of the Bill.

Sir E. Boyle: I understand the hon. Gentleman's point and I can say simply this. I will look at it, but my belief is that as the Clause is drafted, and as Section 469 of the Income Tax Act, 1952, stands, this point ought not to cause any difficulty.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 24.—(SALE OF SHARES IN INVESTMENT COMPANY TO ASSOCIATED DEALING COMPANY.)

Mr. Millan: I beg to move, in page 20, line 17, to leave out from "subsection" to "and" in line 20.
The purpose of this Clause is to deal with transactions by which shares in investment companies are sold to associated dealing companies at inflated prices, the intention being that the seller of the shares gets a capital profit which is untaxed, and the dealing company gets at least a potential capital loss which will be allowed for purposes of taxation. Subsection (3) seeks to eliminate this artificial profit by evaluating the two shares on an assets basis and taking the

actual sales price of the shares and saying that this profit is taxable. In other words, the artificial value is caught by taking the true value from the selling price.
So far as that goes, the Clause is perfectly all right, but it then seems extraordinary that the words—which my Amendment seeks to eliminate—should appear in subsection (2). I find it extremely difficult to understand why these words appear at all. Because of the profit made, as specified in subsection (3), there is attracted a consideration which the seller of the shares pays for them as issued when he sells. That seems to me to be quite irrelevant. The original price for the shares now being sold is quite irrelevant to the transaction with which we are here concerned, and to deduct from the profit, which is by definition a difference, can give a completely absurd position.
As a matter of fact, unless the profit was a substantial one, consideration for the shares in the first place would be considerably less than any profit made. The Clause would be perfectly well drafted, and would meet the intention desired of it, if these words were eliminated altogether.
I can produce no further argument because I frankly fail to see how these words got into subsection (2) at all. To me, they seem to negative completely the effect which the Clause seeks to produce.

The Solicitor-General: The effect of the Amendment would be to make a person who sells shares in an investment company under his control to a dealing company under his control liable to tax on the full amount of the consideration which he receives from the holding company instead of being liable only on the amount by which that consideration exceeds the price he paid for the shares in question. The profit made by the seller of the shares would be measured after taking into account everything he paid for the shares in the first place.
The Amendment in addition would lead to the most absurd results. Take, for example, a person who has subscribed £100,000 for shares in an investment company and decides to sell the shares to a dealing company also under his control when there has been a capital appreciation of a few hundred pounds


in the holdings of the investment company. He would be liable to tax not only on those few hundred pounds but on the £100,000 in addition. I cannot see how that result could possibly be justified, and I would, therefore, hope that the hon. Member would not press his Amendment, but if he does I could only advise the Committee to resist it.

Mr. Millan: Perhaps I just do not understand the Clause, but I am afraid that I still do not understand what the Solicitor-General has said. He said that if the Amendment were accepted the seller would in fact be liable to pay tax on the full consideration which he paid for the shares. That is not so at all. Subsection (3) defines the amount on which tax is to be chargeable as the amount of the profit, and it then goes on to define profit in terms which mean that the profit is the difference between the selling price of the shares and the actual value of the assets of the company which are attributable to the shares. The question of the consideration that the shares get is completely irrelevant to that point.
I should like to give a concrete example of someone selling 50 per cent. of the shares of a company, the true assets of which are worth £10,000. Therefore, the true value of the shares he is selling would be worth £5,000. He sells the shares at an inflated price of £6,000. Under subsection (3) he is due to pay tax not on the £6,000 but on the difference between that and the true value of the shares as assets, namely, £5,000; in other words, he pays tax on £1,000.
That is what the Clause does, and the question of what he originally paid for the shares is completely irrelevant from that point of view. We have to consider the point at which the shares are sold. What happened originally when the company was originally formed and the price at which the seller originally bought the shares is completely irrelevant from this point of view, in considering the selling price of the shares as compared with their true value on an assets basis. Subsection (3) deals with that perfectly well, and I submit, therefore, that the words in subsection (2) which I am seeking to delete are not necessary at all.
I cannot hope to persuade the Solicitor-General, because I think he thinks I am misreading the Clause. I do not think that I am, but if he would at least give me an undertaking that he would look into this point to see whether what I am saying has some substance in it, I could ask leave to withdraw the Amendment.

The Solicitor-General: I had better say straight away that the hon. Gentleman has stirred a little doubt in my mind, and I should like to consider the matter before Report.

Mr. Millan: In view of that assurance, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Motion made, and Question proposed, That the Clause stand part of the Bill.

12.15 a.m.

Mr. Denzil Freeth: I should be grateful for enlightenment on one point. We are here dealing with the case of the profit secured, which hitherto would have been a capital gain, being taxed as income. We are thinking particularly in terms of an asset which increases in capital value through ploughed back profit in the years gone by, or what one will. It appears to me from the Clause that the aim of the exercise is to tax that profit as though it had been profit earned wholly in one year, namely to add the profit on to the Income Tax and Surtax liability of the person who is liable to pay tax on that profit.
I should be grateful if my hon. and learned Friend the Solicitor-General would tell me whether I am right and I would ask whether, on reflection, he does not think that there is an injustice here, since capital value may well take some years to acrue. Would it not be fairer to let this amount of taxable profit be spread out during the years in which the shares were held?

Mr. Diamond: There are quite properly two points of view in the Committee. Hon. Members opposite are concerned that there should be no possibility of catching the innocent with the guilty and that there should be no possibility of preventing a legitimate deal. On this side we desire to strengthen the Clause so that those skilled in tax avoidance should not be able to obtain the benefit


of a transaction once the House of Commons has decided that tax relief should no longer be available.
I want to make two points on strengthening the Clause. First, paragraph (a) refers to shares issued after the beginning of 1960–61. Without raising the awkward problem of retrospection, especially at this hour of the morning, I cannot see why we should not deal with transactions entered into at the beginning of 1960–61 whether or not the shares were issued before that. I do not know why we have to restrict the Clause to shares issued after the beginning of that financial year. Consideration should be given to altering subsection (1, a) so that it will affect dealing with shares after that date, whether the shares are issued after the 5th April, 1960, or before that date.
Secondly, I very much doubt whether my hon. Friend the Member for Glasgow, Craigton (Mr. Millan) has misunderstood the Clause. The whole Committee will have been impressed by the fact that he is the one person here, with due deference to the Front Bench opposite, who seems to have understood everything all the way through. If my hon. Friend has misunderstood it, then I am delighted to be in his company. The point he has made is absolutely straightforward, namely, that it is utterly irrelevant to deduct the cost of shares under subsection (2) and therefore the last four lines of that subsection should not be there at all, because subsection (3) provides for the arithmetic and the arithmetic is on a basis different from the cost of the shares to which the last three or four lines of subsection (2) refer. I hope, therefore, that this matter will be looked at in a determined effort to understand the difficulty hon. Members opposite are having, especially as we are saying that it is not difficult to understand but rather quite easy to understand, but that it is utter nonsense.
This is something which arises very rarely indeed with regard to the drafting of a Finance Bill, but perhaps a misunderstanding has arisen as to how one arrives at a profit on shares.
Having said that, I draw attention to the fact that this is the second of two Clauses dealing with this group of tax avoidance transactions which, as the

Chancellor of the Exchequer said when he introduced the Finance Bill, are designed to prevent the avoidance of tax by persons who switch money from being an income liable to tax to a capital profit not liable to tax. This arises because of the tax structure where capital gains are not taxed, and to keep the arithmetic up to date, this is the seventh Clause in the Bill dealing with tax avoidance. This is due to the fact that income is taxed while capital gains are not taxed.

The Solicitor-General: The hon. Member for Gloucester (Mr. Diamond) has made the same speech, to which we have listened very patiently, on each of these Clauses. I merely say very mildly that he is utterly mistaken if he thinks that a capital gains tax is a foolproof specific against tax avoidance of this sort. I am sure that if he applies his mind—and perhaps he has—to some of the complications that would be involved, and to the fact that tax avoidance is practised in many forms by exempt institutions and by Surtax payers, he will see some of the shortcomings of a capital gains tax as a specific. I did not mean to say that, and I certainly do not want to evoke a debate on a capital gains tax at this hour of the morning, but I have finally been goaded beyond endurance.
Two main points have been raised. My hon. Friend the Member for Basingstoke (Mr. Denzil Freeth) raised the question of the spread of the appreciation. I see great difficulties in that, but I certainly will look into it before the Report stage.
The hon. Member for Gloucester mentioned the question of the relevant date. I think that the short answer is that his proposal would involve an element of retrospection very much on the lines of the very first Amendment that we discussed many hours ago today. The answer is that to tax a person on the profits made on selling shares in an investment company under his control to a dealing company which is also under his control, in a case when he first took up the shares in the investment company and expected that a profit made on selling them to the dealing company would be tax free, in our view would involve an element of undesirable retrospection. I do not therefore think that his proposal is acceptable.

Mr. Denzil Freeth: The Solicitor-General will recall that, in answer to a question relating to the previous Clause, my hon. Friend the Financial Secretary said that to dispose of an asset could mean to sell to a jobber. Will my hon. and learned Friend say whether the words in the Clause
an investment company sells shares
mean merely the sale to a jobber, or whether they mean sale through a jobber to the dealing company, or whether in fact the chain is broken if the jobber is in possession of the shares even if only for a fraction of a second?

The Solicitor-General: I never like giving an opinion in law "off the cuff" on the construction of a Statute. I would prefer to consider that point. At first blush the intervention of a third party, other than a merely colourable one, would break the chain envisaged in the opening words of the Clause. In other words, if it is a sale to a jobber at arm's length and re-sale to a dealing company at arm's length the Clause does not apply; but I should like to give more thought to that and perhaps I could communicate with my hon. Friend.

Mr. Houghton: We are ready to part with the Clause, although my confidence in what we are doing is waning hour by hour. We started off thinking we had really got something in this and other Clauses; then we found a crop of Amendments put down by the Chancellor of the Exchequer, with the object of improving those Clauses, and now we are threatened with another grilling on Report, because time and again in the last hour or two points have been raised which the Solicitor-General has said will be considered before Report —there is a doubt in his mind about this, and there may be a snag about that. The whole thing is becoming a bit of a shambles.
What lies in the background, in the matter of administration, I do not know, but this has lifted the veil of security on the antics of these boys in the City. What are they up to? What are they contributing to the national well-being? It used to be said that a man cannot make a profit out of himself, but it is possible. If a person has control of an investment company he can make a profit if he sells to a holding company which is also controlled by him. It is

that transaction which the Clause is designed to catch.
The Solicitor-General may be quite right to chide my hon. Friend the Member for Gloucester (Mr. Diamond) by saying that a capital gains tax would not solve all these problems. It probably would not, but the Committee is confronting the country with a grave crisis in the principles and the basis of our taxation. The public does not realise how much tax avoidance is going on, and what manipulations can be deployed by people to avoid taxation. It is a pity that this debate is taking place at a very late hour, when the whole of the aggrieved taxpayers in the community are resting quietly in their beds, unaware of the attempts we are making to safeguard their interests; but it will be our duty at some time before the Bill is passed to make our protest while the public is still awake.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 25.—(SALE OF SECURITIES CUM-DIVIDEND.)

Mr. Diamond: I beg to move, in page 21, line 11, to leave out "or dealing broker".

The Chairman: I think that it would be convenient if the Committee discussed, at the same time, the Amendments in page 21, line 19, leave out "or dealing broker", and in page 21, leave out lines 30 to 35.

Mr. Diamond: It would certainly be convenient to discuss them together, Sir Gordon, although I had not expected that it would be convenient to do so at this hour. Having arrived at half-past twelve o'clock, and having made enormous progress with the Bill, I would have expected that the last thing the Committee would wish to do would be to hear me once more speaking on the Finance Bill. But if the Government insist, I shall do so.
The Clause deals with a mechanism for creating an unreal entitlement to the repayment of Income Tax as a result of artificial operations on the Stock Exchange. I had never heard about this, and my brokers had never heard of it when I spoke to them about it. It is extraordinary that it has been allowed to exist without being criminal. As far


as I understand the explanation given by the Chancellor, the mischief which the Clause seeks to prevent is one in which a man may sell gilt-edged shares on the Stock Exchange the day before they go ex-dividend, everybody knowing they are going ex-dividend the following day. He will sell these shares cum-dividend, but he will not have the shares to sell, and, therefore, he must protect himself by buying other shares. He will arrange with his broker for the purchase the following day of shares ex-dividend. This is a conspiracy between the broker and, in this case, the taxpayer, which I understand is against the rules of the London Stock Exchange. I do not know whether it applies in other stock exchanges.
12.30 a.m.
As a result of these transactions, when the two days have been completed, he will have bought shares ex-dividend and sold shares cum-dividend, and he will, therefore, have to hand over the dividend to the person to whom he has sold. Instead of handing over the dividend, gross, he will hand over the net amount of the dividend and a voucher, and he will in this way create a tax repayment voucher which the broker will receive and which will merge with the broker's other vouchers. In due course the broker will make a repayment claim from the Inland Revenue, and in this way an entirely unreal tax repayment will have been effected through this conspiracy between the broker and his client.
I find it difficult to believe, and on reading carefully what the Chancellor said, I see that he finds it difficult to believe, that there can be an occasion on which a transaction of this kind can take place without the broker being aware of what is going on. It is true that the jobber may be, and for all I know is—I have no knowledge of this—wholly unaware of what is going on. Whether that is so or not, it is difficult to imagine a case in which a broker is unaware of what is going on.
The Amendment, which is intended to strengthen the Clause, seeks to remove from the exceptions to the Clause transactions with a dealing broker. I take it that a dealing broker is an authorised broker. I do not know the precise meaning of the term, and my inquiries on the London Stock Exchange have been

answered by confirmation that the term is unknown in the London Stock Exchange. Perhaps it is known in Statutes or some other stock exchange. Alternatively, a dealing broker is a broker who on some other stock exchange has a right both to transact business on behalf of a client on commission and to hold stocks and to deal on his own account.
Whichever it is, the matter is entirely suspect. If he is an authorised broker and is, therefore, one of the category who, by virtue of conspiring with their clients, have enabled this false repayment of tax to take place, then we ought not to be happy about exempting him from the provisions of the Clause.
For one reason or another, whichever is the appropriate definition of a dealing broker, we are not satisfied with the provisions and think that he ought to be excluded from the exceptions. The three Amendments merely have the effect of leaving out of the Clause "dealing broker" and leaving out the definition of "dealing broker" which, consequentially, would not be required in subsection (5).

Sir E. Boyle: The hour is rather late, and I think that I can answer the query of the hon. Member for Gloucester (Mr. Diamond), and the Amendments he has moved, fairly briefly. I shall not go into the whole object of Clause 25—which we can, perhaps, discuss on the Question, "That the Clause stand part of the Bill" —but it is part and parcel of the Stock Exchange tax arrangements. I think that the hon. Gentleman is aware that all through the market the amounts paid to and received by jobbers in satisfaction of net dividends on stocks bought cum-dividend rank as genuine dividends for tax purposes, even though in particular cases the jobber who sells a security cum-dividend might not have the security cum-dividend in his possession or be able to find a person prepared to sell it to him cum-dividend and thus has to complete the deal by purchasing and delivering the security ex-dividend, plus an amount equal to the net dividend.
Jobbers are required to keep what is called a "separate interest account," and if during the year the amount of "dividends" paid by them exceeds the amount of "dividends" they receive they have to account to the Inland Revenue for Income Tax at the standard rate


on the excess. The operators against whom Clause 25 is directed take advantage of this by selling a net, manufactured, "dividend" to the jobber, but do not have to account to the Revenue for tax on the "dividend" as they are not themselves jobbers.
The Clause similarly exempts any brokers on the provincial stock exchanges—the dealing brokers—who are specially authorised to deal in specified securities; for example, those quoted locally, but not elsewhere—if they operate under an arrangement with the Revenue for accounting for tax on dividends similar to that for stock exchange jobbers. The arrangement I have just described to the Committee is a protection to the Revenue with regard to both stock exchange jobbers and dealing brokers on the provincial stock exchanges provided they keep to the arrangement laid down in the Clause. Subsection (3) makes it quite clear that exemption from the requirements of the Clause is dependent on the adoption of the special arrangement. In fact, it is seldom made for dealing brokers on the provincial exchanges but, where it is adopted, exactly the same principle applies as in the case of jobbers on the London Stock Exchange. I therefore suggest that this group of Amendments is not really needed.

Mr. Mitchison: I understand what a jobber is. I have always understood that jobbers and brokers were not in partnership together—and I see that I am right. What about a dealing broker? Does he only partner with other dealing brokers? If so, why does he not call himself a jobber. Or does he partner with brokers in the ordinary sense of the word? If he does, is there not a possibility such as that dealt with by my hon. Friend the Member for Gloucester (Mr. Diamond)? Is it not rather undesirable that there should be a partnership or association between dealing brokers and other brokers on the provincial exchanges?

Sir E. Boyle: I can only say that I do not think that there is a case such as the hon. and learned Gentleman has suggested. The whole point is that the dealing broker, as defined by subsection (5) on the provincial exchange is equivalent to the jobber on the London

Stock Exchange and the same arguments apply to both.

Mr. Mitchison: By what perversity of nomenclature does he call himself a dealing broker? Why does he not call himself a jobber? Those of us who know anything about the Stock Exchange have not heard of this strange beast called the dealing broker, and the Economic Secretary does not seem to know whether that broker can partner an ordinary broker.

Mr. Denzil Freeth: Before my hon. Friend replies, will he not agree that it is only the London Stock Exchange that has the jobber system, and that every other stock exchange has brokers —who call themselves brokers pur et simple—but that in the case of this Bill it is necessary to differentiate the provincial broker who fulfils the obligations or activities of both jobber and broker, a distinction which, in the Bill, would separate him from his brother on the London Stock Exchange, who is only a broker, and not a jobber?

Sir E. Boyle: I do not think that I should enter upon a history of the Stock Exchange at this hour of the morning, but I am grateful to my hon. Friend the Member for Basingstoke (Mr. Denzil Freeth) for his observation.
I have put up with being called the Economic Secretary by the hon. and learned Member for Kettering during the sittings of the Committee so far, and I hope that he will allow us to have the "dealing broker" before we pass from this Clause.

Amendment negatived.

Mr. H. Wilson: I beg to move, That the Chairman do report Progress and ask leave to sit again.
We have had several comments from the Financial Secretary about how late the hour is and that he could not enter into a full discussion of some of the important points raised by his hon. Friends and by my hon. Friends on that account. I had the impression during the very learned piece to which he has just treated the Committee that even he was not taking it in as fully as he would normally do if the hour were earlier, and I suspect that if he had turned his notes face downwards he would not have been able to repeat what he then said to us.
We have some very elaborate and difficult questions ahead of us which, no doubt, will be debated tomorrow. I have been looking at an Amendment tabled by the Chancellor at rather short notice. I do not want to read it all—there is a lot of it—but if I just read one sentence, it will, I think, give the Committee the best possible reason for adjourning now. The last sentence reads:
Provided that such a determination shall not affect the operation of this section in respect of transactions which include that transaction or some or all of those transactions and also include another transaction or other transactions".
That, I am sure, will be crystal clear to the Committee at a reasonable hour tomorrow. I doubt that it is crystal clear to me, at any rate, and perhaps it is not clear even to the Chancellor at this time of the morning. For that, and for several other reasons, I hope that the right hon. Gentleman will agree that we should stop now.
I know that it was the hope of the Patronage Secretary—he must have a very unhappy time on these Finance Bills—that we should go as far as the beginning of Clause 26 tonight. It was our hope, also. I hope that the Patronage Secretary will agree that we have been very co-operative, not only today, but throughout the proceedings on the Bill so far. If I point out that of the 26 Amendments we have debated during this sitting, that is to say, since 3.30 yesterday afternoon, only seven were moved from this side of the Committee and 19 were moved from the benches opposite, no one, I think, will accuse the Opposition of hogging the time spent on the Bill. Probably, we have addressed the Committee for a good deal less than half the time that hon. Members opposite have taken on some of the very important Questions that various Clauses should stand part of the Bill, particularly Clause 18 and certain others.
The debate on whether Clause 25 should stand part of the Bill is quite important. It raises the whole subject of cum- and ex-dividend dealing, which some of us have been pressing on successive Chancellors for years, without very much success. We are glad that the Chancellor has tabled the Clause, so far as it goes, but, like my hon. Friend the Member for Sowerby (Mr. Houghton), we are a little doubtful about

how effective some of the Clauses will be. It will be recalled that the first attempt to deal with cum- and ex-dividend dealing was made—I speak from memory—in Section 12 of the Finance Act, 1937, twenty-three years ago. No doubt, it was thought then—I expect the Chancellor said so at the time —that the whole tribe of bond-washers, and so on, would be exterminated. Yet these problems are still with us.
The Committee will feel, I imagine, that, instead of debating this very important Clause now, we ought to return to it tomorrow when, I hope, all of us will feel a good deal fresher than we are now. I am sure that the Chancellor will agree that I make this suggestion without any desire to hold up the passage of the Bill. I do so simply in order that we may go to bed at a reasonable hour now. Of course, the Chancellor knows that, if we had wanted to hold up the Bill, it would have been possible to move 100, or perhaps 1,000, Amendments. There could be no easier Finance Bill for that purpose. We have, indeed, been very abstemious. [An HON. MEMBER: "Oh."] If any hon. Member wants to encourage me, I can go on for a couple of hours more.
We have been extremely restrained in the time we have spent on the Bill. Had we wanted to delay its passage, it would have been easy to move a large number of Amendments. Hon. Members opposite have moved a large number of Amendments. In every case, it could be felt that there was an important point to be raised from one point of view or another. We have not done so. Therefore, in moving to report Progress, I hope that the Chancellor will take it from me that this is in no way a dilatory proceeding but is so that we can come fresh to our further discussions.

Mr. Amory: It would have been nice if we could have finished the Clause. On the other hand, I cannot disagree with the right hon. Member for Huyton (Mr. H. Wilson) that, bearing in mind the extreme complexity of the business we have been dealing with, the Committee has been most co-operative. In all the circumstances, therefore, we can feel that the progress we have made is not unreasonable. I support the Motion.

Question put and agreed to.

Committee report Progress; to sit again this day.

ROYAL COMMISSION ON HISTORICAL MONUMENTS

Motion made, and Question proposed, That this House do now adjourn.—[Colonel J. H. Harrison.]

12.47 a.m.

Mr. Martin McLaren: I am sorry to impose an Adjournment debate on my hon. Friend the Financial Secretary to the Treasury at this time of the morning, when he has been so valiantly dealing with the Finance Bill in Committee, but he will know that the timetable is beyond my control. My researches show that it is many years since the House has discussed the work of the Royal Commission on Historical Monuments—England. I thought that it would be useful to see whether, in a co-operative spirit, we could further its work.
The Royal Commission was set up in 1908, fifty-two years ago, and its original terms of reference were as follows.
To make an inventory of the historical monuments and constructions connected with or illustrative of the contemporary culture, civilisation and conditions of Life of the people in England, from the earliest times to the year 1700, and to specify those which seem most worthy of preservation.
Five years later, the closing date of 1700 was altered to 1714. After the last war, in 1946, the Commission was given discretion to include such monuments later in date than the year 1714 as seemed to them to be worthy of mention. It has so far exercised that discretion by including buildings erected up to 1850, so that now all Georgian and some early Victorian buildings and monuments of the Industrial Revolution are within its ambit. For example, in its recent volumes on the City of Cambridge, the Commissioners have treated as monuments a home for fallen women and also the railway station.
Twenty distinguished persons are members of the Royal Commission, the chairman being Lord Salisbury, and I am sure that the thanks of the House are due to them for the valuable work that they do in a voluntary capacity. There is also a small staff of investigators who do the actual work of writing the inventories and I see from this year's Estimates that the amount which we voted for the expenses of this body is about £50,000. The volumes which the

Commission has published are undoubtedly of high quality, as one may see from a look at the books on the City of Cambridge, which I have mentioned.
The principal matter which I want to raise this evening is that the rate of output of the Commissioners has been disappointingly slow. That may not be emir fault. It may be our fault for not nourishing them with enough resources in the way of staff. I know that it is difficult to expand a staff rapidly, owing to the need to keep up the high standard of scholarship which is required. I believe that the Commission now has several more volumes on the stocks.
Nevertheless, it is a fact that in the fifty-two years that the Commission has been in being it has managed to cover only nine out of the 40 or so counties of England, plus the Cities of Oxford and Cambridge and a guide book to the Cathedral of St. Albans. In the last twenty years, a period which has admittedly included the last war, it has managed to produce only one volume on Dorset, and the two volumes on the City of Cambridge, plus St. Albans. I understand that the Commissioners give as an excuse the fact that they lost some of their papers in a fire in 1945.
At the present rate of striking, the Commission will still be busy a hundred years from now. There seems to be rather a sardonic ring in the words of the Warrant, where the Commissioners are required as follows:
Our further will and pleasure is you do, with as little delay as possible, report to us your opinion on the matters herein submitted for your consideration.
The complaint of slowness is nothing new, because in 1912, only four years after the Commission began, an hon. Member addressed a Question to Mr. Lloyd George, then Chancellor of the Exchequer, and pointed out that at the present rate of progress the labours of the Royal Commission would in all probability take some forty years. He was an optimist, because those forty years have come and gone and the Commission is not yet nearly through half its work.
Why should the pace be so slow? I find myself reminded of the obituary notices of dons which one so often reads in The Times. We are told that they were


scholars of first-class intellect and yet, at the end of a long life, owing to the interruptions of teaching and academic administration, their actual output of printed work has been confined to a few articles in learned journals. Notes for the magnum opus were in existence, but the book never saw the light of day. Perhaps the same spirit of perfectionism may be found in the rooms of the Royal Commission.
There may have been too much emphasis on recording the totality of the evidence and too much emphasis placed on perfect revision. Perhaps there is too great a rigidity of method. I have been told that an investigator who is an amateur photographer and who goes out with his Leica is not encouraged to take photographs, as he might willingly do, of monuments which he investigates and that an official photographer has to be separately sent for. I believe, too, that there may be too much centralisation of editing at the Commission's headquarters in London.
Another difficulty may be the delay in making any publication until a whole book is ready. One intelligent suggestion which, I believe, has been made is that there should be continuous publication in periodical parts as in the case of the Law Reports. This would have the advantage that those who are members of a college, or who live in a particular parish, could buy separately the part dealing with their college or parish and would not have to buy the whole volume, which might be beyond their financial resources. Furthermore, they would get it earlier, and this plan would also encourage the investigators who now know that the work which they are writing may never see the light of day for years to come.
When all these matters are considered, a wider question presents itself, and that is whether the existence of a separate and permanent Royal Commission is the best form of organisation that we could use today. It may have been a suitable arrangement in 1908, but is it the best for 1960? There have been so many other developments in this and related fields. We have the Ancient Monuments Acts, administered by the Ministry of Works, with the Ministry's inspectorate, and the help of the Ancient Monuments Board; the Historic Build-

ings Councils, and the Archaeological Department of the Ordnance Survey. There is the National Buildings Record, and there is the duty of the Minister of Housing and Local Government, under town and country planning legislation, to compile lists of buildings of special architectural or historical interest, so that local planning authorities may consider making preservation orders.
This last code seems, incidentally, to reduce the importance of one of the original functions of the Royal Commission, namely, to specify which monuments seem most worthy of preservation; there is much more knowledge now than existed fifty years ago. When one surveys the whole of this field, one sees that it presents a motley and patchwork appearance, and I suggest that there is a good deal of duplication of files kept by the different Government authorities. It may well be that the work of the Royal Commission would receive new impetus if the Commission were wound up as such and its functions transferred to the Ministry of Works, where they could be combined with the Minister's existing responsibilities.
I understand that the Secretary of the Royal Commission is approaching retiring age. That occasion might be used as a suitable opportunity to recast the administrative structure. I again acknowledge the excellence of the work of the Royal Commission and its publications, but I only wish that we had more of them. I raise this matter in no hostile spirit, but in the hope that we may succeed in helping those engaged in this work to make further progress.

10 a.m.

Major Sir Frank Markham: I should like to support the plea which my hon. Friend the Member for Bristol, North-West (Mr. McLaren) has made for a speeding up in the work of the Royal Commission. I speak with some difficulty tonight because the matter is, as I think the Financial Secretary knows, under consideration at the moment by the Select Committee on Estimates, but from my own experience as a local historian of many years' standing—if I may say so—with several publications to my credit, I must say that I am appalled at the slowness of publication of the Royal Commission.
My own estimate is that, considering the present pace at which the Commission is proceeding, it will take 240 years before it covers the British Isles. I reckon that from the number of volumes it has already published and the number of volumes yet to be published to cover the whole country. It may be that there are internal stresses and difficulties which the Financial Secretary knows only too well and which could be relieved by his own personal attention.
Much of what we are discussing tonight is under consideration now indirectly by the Select Committee on Estimates, but given that the present pace is far too slow, indeed so slow that by the time the last volume is published it will be time for another entire series of volumes dealing with the 240 years which will have passed between now and then, it seems that much is needed by way of Ministerial encouragement or reorganisation to achieve the results that we all hope for.
My hon. Friend has made an appeal that the Royal Commission should also publish what one might call partial publications dealing with individual parishes. This I should very much like to support. Without going further, or depriving the Minister of his opportunity to reply, I would say that none of us who is a local historian or archaeologist or architect, can but deplore the slowness of the progress of the Royal Commission. I hope that the Financial Secretary will do everything he can to improve the present situation.

1.2 a.m.

The Financial Secretary to the Treasury (Sir Edward Boyle): I should like to thank my hon. Friend the Member for Bristol, North-West (Mr. McLaren) for initiating this topic tonight and my hon. and gallant Friend the Member for Buckingham (Sir Frank Markham), who is a local historian in his own right, for the comments that he has just made.
May I say, first, a word about what has already been achieved, and the back history of this Commission? As my hon. Friend said in initiating the debate, the Commission was appointed by Royal Warrant in 1908 and its appointment was extended by further Warrants of November, [913, and April, 1946. In 1946, as he said, the terms of reference were extended to include buildings down to

1850 and such further monuments as might seem in the discretion of the Commissioners "worthy of mention".
This wider scope has been interpreted by the Commission in recent years to cover monuments in the widest sense, that is to say, those which are worthy of mention for architectural, social, historical or cultural reasons. The Commissioners have regarded it as their duty to discover, assemble and interpret material on such widely divergent monuments as neolithic burial grounds, bronze age graves, Roman forts and camps, Norman castles, churches, inscriptions on stained glass windows, and later buildings of every description, even workhouses put up under the 1834 Poor Law Act—a very wide ambit.
Between 1908 and 1939 the Commission covered eight counties, Hertfordshire, Buckinghamshire, Essex, Huntingdonshire, Middlesex, Westmorland, Oxfordshire and Herefordshire, and, in addition, has completed an inventory of five volumes on London. Since 1946 the Commission has expanded. Before the war it concentrated on one county at a time only, but now attempts work on three counties. An inventory of West Dorset was completed in 1952, and two large volumes of the City of Cambridge have just been published recently. To date, 22 volumes have been produced on the counties and Oxford and Cambridge.
Work is in progress on completing a study of Dorset, and producing surveys of three cathedral towns, Salisbury, Ely and York. In addition the Commission has in hand a complete survey of all the river gravels of England with the aim of helping local archaeologists by saving from destruction ancient works by gravel digging.
I agree, of course, with my hon. Friends that the work of recording and of publication of the Commission's Reports have been proceeding very slowly. On the other hand, let us remember that scholarship is not something that can be hurried, and the work of the Royal Commission has consistently maintained the very high and exacting standard which it has set itself. The recently published two volumes on Cambridge are an excellent example of this work, and it must be remembered that the Commission has at present in


hand work on several counties and cathedral towns, for example, Dorset and York.
I should like to emphasise the point about standards, because I know that it is true that an enormous number of volumes of syndicated history are taking a very long time to come out. It is more than a quarter of a century since the Oxford History of England was started and two volumes are still to come. I was glad to hear from my old tutor Steven Watson that the volume on the reign of George III may appear shortly. I will be frank and say that with the possible exception of the one on the Stuart period they have been rather good volumes, and one must remember the number of rather poor books that come out when one feels that the author has not taken as much trouble as he should have done.
Since 1946, the staff of the Commission has increased from 16 in 1947 to 35 in 1957, and the current number is 36. The substantial increase in 1957 was made necessary by the Commission's undertaking to survey prehistoric and early historic earthworks threatened by agriculture, forestry or housing developments. There are, in addition, Ancient and Historical Monument Commissions for Scotland and for Wales. These, like the English Commission, were appointed in 1908, and in the case of the Scottish Commission the terms of reference were extended by Royal Warrant in 1948. To date, the Scottish Commission has produced 17 volumes, covering 16 counties and the City of Edinburgh, and the Welsh Commission nine volumes covering nine counties.
I am sure that the Commission, under its distinguished Chairman, Lord Salisbury, who was kind enough to visit me privately the other day and discuss its work, will study carefully the suggestions I have seen and heard made for speeding up the work, and particularly the idea that the Commission might publish its work on counties in parts which could later be bound in larger volumes. That has happened in the case of the Victoria county histories with great advantage and the Commission would do well to consider that idea.
Further, we are at present at the Treasury considering the representations which the Commision has made to us for an increase in staff on the editorial side. It is rather nice, after discussing the Finance Bill all day, to be reminded at the moment that the Treasury is in a small way a spending Department as well. But one must ask oneself whether the problem is not really in part one of reorganisation and reassessment. For some time we have been aware at the Treasury that there were possible overlaps among organisations which operate on behalf of the Government throughout the broad field of historical monuments and buildings.
To find out more about this we initiated, some months ago, an inquiry to examine the work of the National Buildings Record and the corresponding work of the Ministry of Works and the Historical Monuments Commission for England, and the relation of this work to the requirements of allied bodies. The inquiry was also to draw attention to the possibility of improving the present arrangements. In this connection I can make an announcement to my hon. Friends which I hope will give some satisfaction and may even be noticed elsewhere out of doors, although the hour is so late.
When the report on this inquiry is available I propose to set up a small working group, under my chairmanship, to consider its recommendations and to arrange any necessary reassessment and reorganisation of the Government's various activities in this whole field. As I see it, the question at the moment is not so much one of more, or less, staff, as of reorganisation and rationalising the present arrangements.

Sir F. Markham: I would appreciate amplification of one statement that my hon. Friend made. He said that since 1947 the staff of the Royal Commission had doubled, but the pace of publication has not doubled. I would be grateful if he could bring production into line with the increased staff.

Sir E. Boyle: I am coming to that. We want to increase the rate of publication, but, on the other hand, I think that my hon. Friend will agree that in all kinds of cases there has been a great increase in standards of scholarship


during my lifetime, at any rate during the last twenty-five years. A great many more sources of information have come to light. In addition, the care and scholarly skill with which sources are handled are very different from what they were many years ago.
I entirely agree, for example, that we had the Duke of Newcastle's papers available at the end of the last century, but it is only really since the days of Sir Lewis Namier and the new historical techniques that he introduced that we have been able to make the best use of this source. I am sure that that also applies to the study of ancient buildings and visible evidence of all kinds, and that is one of the reasons why publication has been slower than we would have liked.
I assure my hon. Friends that the Commission realises the need to strike a balance. The need is, on the one hand, never to sacrifice scholarly standards and, on the other, not to aim at such perfectionism as will mean that we will get too slow a production of volumes.
I assure my hon. Friends that as long as I am at the Treasury—and I very much hope that this will apply to my successors—I shall take a continuing interest in the work of the Commission. It will be a great pleasure to me to become the chairman of the working party when the report that I have mentioned becomes available.

Question put and agreed to.

Adjourned accordingly at twelve minutes past One o'clock.